Apollo Global Management, Inc. (New)

Good morning and welcome to Apollo Global Management's second 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 opened 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 Peter Mintzberg, head of investor relations.

Thanks, operator. Welcome to our second quarter 2021 earnings call. Joining me this morning are Mark Rowan, CEO and co-founder, Jim Zelter, co-president, and Martin Kelly, CFO and co-COO. I'd like to turn it over to Mark to kick off our comments for today.

Thanks, Peter. Good morning to all. Pleasure to be here. Q2-21 was a particularly strong quarter for Apollo. Business, as you saw from our results, is performing well across all metrics. Record quarterly FRE of 68 cents a share. The highest DE since 2013 of $1.14 per share. Strong performance across the PE portfolio, up 9.5%. Credit up 2.6%. The numbers speak for themselves. And Jim and Martin, I don't want to steal their thunder. They will review specifics of the quarter with you. In terms of other corporate housekeeping, our merger timing with Athene is on track. We expect that to close in January of 22. During the quarter, we continue to make progress across the communicated governance and cultural enhancements. We welcome David Simon to our board. As you know, we are on track to simplify our voting structure in connection with the merger that, again, will happen in January of 22. For those who didn't see it, we recently published our 12th edition of our annual ESG report detailing how we take a holistic approach across all of the communities we operate in and how important this is to our franchise. We also announced during the quarter our... commitment to all finance, an important initiative designed to diversify the alternative industry and expand opportunity to historically black colleges and universities. Additionally, during the quarter, the key person clauses in our private equity business have been satisfactorily approved and addressed. Having gotten through the housekeeping, let me do as I often do on these calls, take a step back and look at the big picture. The demand for our end product, excess return, remains incredibly strong. Drivers of this are persistently low rates, a growing retirement market both for retail and institutional, importantly, the disappearance of spread in almost any form in public markets, and the democratization of access to alternative credit and equity across other channels than historically have been available. We have positioned the firm, and the way we go to market is our ability to generate excess return, alpha, at all points across the risk-reward spectrum. We view this as our competitive advantage. We view this as our rationale. We are in the alpha generation business rather than the collection of AUM for the purpose of collecting AUM. Across our opportunistic franchise and our hybrid franchise, We approach this in a contrarian value-oriented mentality with a proven track record over a variety of market cycles over 31 years, and the results, as you've seen previously, are spectacular. In yield, the largest of our segments, this is a fixed-income replacement business. This is not an opportunistic credit business. Our goal in our yield segment is to produce 150 to 200 basis points of excess return over the equivalent QSIP across the capital structure. We want to get paid in our yield business for illiquidity and complexity and origination, not for taking additional credit risk or assuming other risks that we do not intend. Again, stepping back, as we've said previously, in the broadest terms, over the next five years, I expect our yield business to double. and I expect our opportunistic and our hybrid business to be 50% larger. I believe this will take place without any significant acquisitions in our asset management segment, although, as you will see and Martin will address, we have ample capital to accelerate our growth if we find interesting opportunities. Last year, we added 300 people to our 1,300-person base, This year, we will add between 300 and 400 people. And I am confident that we will end the year positioned to support and accelerate growth into 2022. I don't want to take too much away from strategy, but I will step back and now talk a little bit about strategy. As you know, we are fortunate to be in a growth business. Almost every day, the business gets better. The trends in the business are overwhelmingly favorable, and we look forward to providing you an in-depth perspective on our business and our go-forward strategy at an investor day, which we will announce, which we expect to take place in the month of October. In advance of investor day, I want to touch on a couple of building blocks, which I've mentioned previously. In order for us to double the yield business and increase the opportunistic and hybrid business by 50%, We need to do a couple of things. First and foremost is to expand our capacity to generate investments, origination. Second is to strengthen our distribution capabilities, particularly in our hybrid and opportunistic segments. And third, and a relatively new area for us to touch on, but one that consumes a lot of our time and mind share, is to prepare the company for the innovation and change that is taking place across the financial services landscape. Make no mistake, the innovations we are seeing in FinTech, which have taken place across trading markets and other types of markets, are coming to alternative finance. We view this as a significant opportunity rather than a threat, as I believe we are well prepared for it, and I believe our industry, given that it moves relatively quickly, will be well positioned to take advantage of this. Let me start by a review of origination. A lot of what I read, particularly in the analyst commentary and even ourselves, we talk about the permanent nature of our capital, so-called perpetual capital. I think of origination as perpetual asset origination. We want each year not to have to start from zero. We want to be able to count on recurring asset origination opportunities across our yield business because the demand for yield product is going up. and 100% of what we originate has a home. This quarter, we made significant progress in the origination. We announced a significant relationship with Victory Park, which will give us access on a senior basis to the growth and technology lending space, and we announced the acquisition of Foundation Mortgage, a UK-based mortgage lender. You should expect to see us make additional announcements with respect to our origination franchises, over the remainder of the quarter. We are, and the industry, is short origination. The capacity to originate, the expansion of our capacity to originate, is key to our growth, particularly across our yield business. As it relates to these alternative distribution channels, again, significant progress was made during the quarter. We expect to have a fully ramped up retail distribution business in place for the launch of Fund 10, as well as certain credit products toward the end of this year. And we expect retail to be a significant part of our go-forward strategy, which I know Jim will spend some time on in his remarks. Let me hit on this other topic of innovation and change coming to our landscape. Apollo, one of our key strengths is in financial services. not just in the growth of our retirement services businesses, but in banking, in lending, in origination. Our business, as I said, is evolving. And we, like our peers, are ourselves a large financial institution. Changes are coming to the way products are distributed. Changes are coming to the way we securitize and the way markets function. And changes are coming to the way we originate assets. All of these things, as I said, we welcome. I believe these plays toward our strength rather than something that we should be concerned about. During the quarter, we announced two significant ventures, one with Motive, which is a strategic investment to help position us at the forefront of fintech and technological innovation, and the second with Figure, which is a strategic collaboration to implement blockchain across the investment lifecycle, particularly focused on securitization. These are not pie in the sky. These are real, tangible things that will have immediate cost benefits, data collection benefits, and other benefits to our business. Away from the three things I mentioned, a lot of interesting opportunities during the quarter. You will hear, and I will steal a little bit of Athene's thunder, there is a robust stream of growth in retirement services across the platform. This year, we expect to originate at Athene north of $30 billion on an organic basis, and if trends continue, could be as much as $35 billion. Further, we made a significant minority investment joining Athene in taking a stake in Challenger. Challenger looks an awful lot like Apollo in Athene, but in a fast-growing and really interesting Australian market. They are both an originator of assets, as well as the largest provider of annuity product in the Australian market. Before I turn it to Jim and to Martin, I just want to make it clear, there is just incredible momentum across the platform. This is internal and this is external. We are laying the groundwork for first an exciting investor day, but also looking very much forward to completing the merger with Athene beginning of 22 and a very strong 22. We are seeing the tangible benefits of the cultural initiatives we put in place. Our workforce is engaged, excited, and wants to be back in the office. With that, it's my pleasure to call over to my partner, Jim Zelter.