Apollo Global Management, Inc. (New)

Good morning and welcome to Apollo Global Management's fourth quarter and full year 2022 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. Please limit yourself to one question and then rejoin the queue. This conference call is being recorded. This call may include forward-looking statements and projections, which does 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 Noah Gunn, Global Head of Investor Relations. Please go ahead.

Thanks, Donna, and a special thanks to a couple members of the research community who selected two of the three songs for our whole music jukebox that was playing before we got on the line today. Earlier this morning, we published our earnings release and financial supplement on the investor relations portion of our website. In short, we're very pleased to deliver a strong set of results for 2022 that featured record fee-related earnings of $1.4 billion or $2.36 per share and record normalized spread-related earnings of $2.3 billion or $3.88 per share. This strong combination of fee and spread-related earnings alongside principal investing income drove total adjusted net income of $3.1 billion, or $5.21 per share for the full year. Joining me this morning to discuss these results and our positive outlook on the business in further detail are Mark Rowan, CEO, Jim Zelter, co-president, and Martin Kelly, CFO. With that, I'll turn the call over to Mark.

Thank you, Noah, and good morning to all. 2022 was a transformational year for the firm. At the end of 2021, we held our first investor day, and we set out our five-year targets and laid out what we needed to accomplish internally to achieve those targets. End of 2021 seems like a lifetime ago, or at least a Fed regime or two ago. However, in 2022, we met or exceeded those targets. Record FRE of 1.4 billion was in line with our target, and record normalized SRE of 2.3 billion was meaningfully ahead of target. As important, and as we suggested, we restarted the growth engine. Inflows in 2021 were $75 billion. Inflows this year, $128 billion. Inflows for 2023 will be higher. We expect a record year of capital raising in 2023. As I've often cautioned, capital raising is the reward for good performance. It is not actually the goal that we set out. AUM ended the year at 548 billion or X rates and FX would have been about 565 billion. All meaningful progress against our five-year targets. Recall that in investor day, we laid out three key objectives or three key pillars that we had to focus on to achieve our plan. Global wealth, origination, and capital solutions. Global wealth had a really strong 2022. We ended the year with approximately $30 billion of AUM in our global wealth segment, including $6 billion of capital raised in 2022, accounting for and implementing successfully the Griffin acquisition during the mid part of the year. We are on track to meet or exceed our $50 billion target at the end of 2026. When we laid out these targets, we had zero perpetual products in the marketplace. By year end, we expect nine perpetual products in the marketplace. In short, we've had tremendous receptivity to our product and to our franchise in the global wealth community. Our goal here, like the goal elsewhere in our organization, is not to be the biggest. We will not necessarily be the fastest growing. We will be seen and are seen as the innovator in this marketplace, showing the global wealth community the kinds of products that they have never seen before and addressing the unique needs of this interesting constituency. Origination volume totaled north of $100 billion on a 12-month basis. We now have 15 platforms, including seven platforms which were new additions during 2022. You will hear later in the call the most recent addition, Atlas, formerly known as the Credit Suisse Securitized Products Group. We are definitely on track here to meet or exceed our $150 billion annual target at the end of 2026. Having a steady source of unique credit production every year really enables us to power our business, to make the kind of projections and predictability and the client commitments that are necessary for us to grow. This is good for our FRE business, in that it powers our third parties, particularly in private credit, and it is especially good for our SRE business in that we produce reliable amounts of excess spread, particularly in investment-grade private credit. I'm going to spend a second just on that term. We hear the term private credit a lot. We actually have no idea what the words private credit mean. They're just two words that follow each other. What we have focused on in our platform and what we have done uniquely is to create a source of private investment grade credit. Very few people, very few organizations have that capability. This is in addition to the strength that the franchise has always had in more generic private credit. Jim will spend a lot of time on this in his remarks and is a very important part of our franchise going forward and a huge differentiator. The third pillar that we set out is our capital solutions business. CAPITAL SOLUTIONS IN 2021 WAS APPROXIMATELY 250 MILLION OF ANNUAL REVENUE, AND WE SUGGESTED THAT AT THE END OF 2026, WE WANTED THAT TO BE NORTH OF 500 MILLION OF ANNUAL REVENUE. IN 2022, WE EXCEEDED 400 MILLION OF ANNUAL REVENUE. GIVES ME GREAT CONFIDENCE THAT WE ARE ON TRACK TO MEET OR EXCEED THE FIVE-YEAR PROJECTION THAT WE LAID OUT AT THE BEGINNING OF 2021. THE TEAM HAS BEEN FULLY BUILT OUT GLOBALLY. We have a massive pipeline that we executed on partially in 2022 and will carry over into the first quarter of 2023, which Martin will touch on. And most important is to help understand and help explain the ecosystem that we are creating. Fifteen platforms, 15 companies whose only job is to produce credit wake up every day and do what they do. They produce credit. as a diversified buyer of credit for our own balance sheet in SRE, we want 25% of everything and 100% of nothing. And so what that means, we are creating every day credit that needs to be syndicated into the marketplace. Some of that goes into funds or to SMAs of clients who have previously come to the Apollo platform. The rest of it goes into our capital solutions business. This is a strategic imperative for us and does two very interesting things. One, as we place credit with third parties, we earn fees. Earning fees is a fundamental part of our business model. But as important, they are expanding our ecosystem. We have done business in the alternative community with investors with circa 3,500 counterparties for a long period of time. This is an opportunity with unique product with side-by-side with a line product, with recurring product for our capital solutions group to go out and build new relationships. Sometimes those new relationships will result in one-off transactions, which is just fine, but oftentimes those new relationships will open up clients' eyes as to what we can do, and we will turn those into SMAs and recurring revenues. This is an ecosystem that is picking up tremendous traction, and the team here is doing an unbelievable job. As excited as I am about the 22 performance against the three initiatives, I now want to turn to Athene, who had just an awesome year. Inflows at Athene on an organic basis were some $48 billion. Athene was the number one purveyor of annuities in the United States, despite not being represented in a lot of annuity markets. New business was put on the books in the fourth quarter at about $150. 45 basis points of spread versus about 120 basis points of spread for the full year. Both of those targets are meaningfully ahead of what we would consider normal levels of business. 2023, I believe, will also continue to be very strong. I doubt it will continue at the same levels that we saw in the fourth quarter, but new business is being put on the books very profitably. Athene's ALT portfolio, which as many of you also understand, forms the foundation for AAA, our retail product, our equity replacement product, was up 10% during the year versus the S&P benchmark, which was down almost 20%. Very strong performance and an indication that Athene and AAA are doing something other than buying and providing clients with market beta. As we step back and we think about Our positioning in this marketplace, one of the questions we asked the team, who is the fortress balance sheet in our industry? And the answer is we are the fortress balance sheet in our industry. We are A-plus across all three agencies. We ended the year $2 billion of excess capital and more than a billion ahead of S&P double A. Some years ago, we introduced what was the first sizable reinsurance sidecar for our industry, affectionately known as ADIP-1, with $3.25 billion of capital. That sidecar has now been nearly fully deployed. And yesterday, or earlier this morning, we announced the first closing for ADIP-2 of some $2 billion. And we expect that ADIP-2 will be larger than ADIP-1. And further, that ADIP II will take an increased share of the new business that Athene puts on the books. This is good all around. This is good for Athene from a capital generation point of view and a capital efficiency point of view, even though it will mean that some of their assets are now essentially belong to investors and they will realize the benefits of SRE growth. It is good for FRE. and it is good for our origination franchises, creating additional capacity that needs to be filled, which will further spur the flywheel of our capital solutions and other businesses. In short, an amazing year for Athene. Our success in this business of retirement solutions has not gone unnoticed. By some measure, there are now north of 100 asset management entities or insurance entities who have become asset managers pursuing a strategy similar to that which Athene started on 13 years ago. To be successful in this business and to understand where we sit relative to the rest of the business, I believe there are four things that contribute to success. First is capital, massive amounts of capital in an industry that has not been able to raise capital. The second is an ability every day to create investment-grade spread This is something and a skill set that is not traditionally resident within the alternative industry or, quite frankly, within traditional asset management. It is a skill that we have built up. The third is a really attractive cost structure. You need scale because ultimately spread is a function of your net interest margin, but it's also a function of a very efficient cost base. And finally, you need a very attractive cost of funds. If your cost of funds is low because you're efficient and because your products are well-designed, you do not need to take investment risk to earn good returns. And if you're a good investor, returns can actually be quite high. Everything goes in reverse if your cost of funds is very high. What we are watching in our industry is the haves, like Athene, where we have some $48 billion of organic origination versus the have-nots, the market entrants, who in fact are paying up for inorganic blocks at very high cost of funds which also are very expensive to administer on a hope that they will get to scale. I believe that the vast majority of new entrants, although not all, will not be successful and will learn a very expensive lesson along the way. We are also in a period of time where the increased activity by asset managers has resulted in increased regulatory interest in what we are doing. We have spent 13 years creating the kinds of regulatory dialogues and transparency and putting out a best in class set of standards. We are, to my knowledge, not just a fortress balance sheet, but the most transparent of the companies. We regularly publish stress tests, although we are not required. We regularly publish details of assets that we are not required. We regularly go back and forth with respect to our reinsurance so that people understand there is no, quote, arbitrage between the U.S. regulatory standard and the Bermuda regulatory standard. All of the things I've just mentioned are not generally followed by many, although some are good actors of the new entrants. What you will see in 2023 on our part is an increased foot forward to help lead this regulatory dialogue to make sure that we get to the right place with appropriate transparency, and appropriate oversight. This is an amazing business that is driven by powerful trends, but it is also a business of promises to retirees. We expect that we will be included among a group of companies as internationally active insurance groups at some point in 2023, giving us an opportunity and a seat at the table to participate in shaping the regulatory future for our industry, which is changing very fast. SRE for us is the flip side of FRE. The ability to generate safe yield is something that very few people have. Who needs safe yield? Retirees need safe yield. Pension funds replacing a portion of their fixed income need safe yield. Banks need safe yield. Japanese insurance companies and international investors need safe yield. The world is short in safe yield, and we are very good at producing it. So when we produce it in an asset that is short, we want to maximize the profitability of our capability. And then that's why I say that SRE is the flip side of that. We earn FRE for the safe yield we produce for third parties and for Athene. But then on top of that, we earn SRE, or spread-related earnings, by matching the safe yield with long-term sticky liabilities. In 2022, a number of other forms of so-called permanent capital went in reverse. 2022 was an awesome year for Athene. Let me step back and now return to a higher level view of our business. Our business, as I've suggested previously, exists and our industry exists to provide investors excess return per unit of risk. It does not exist for us to grow or for us to pursue that which we want. We are fundamentally responding to investor needs. Fortunately, we have very strong tailwinds as a firm and as an industry for the need for income, excess return per unit of risk. Our business strategy is being driven and growth is being driven in areas where we believe we can continue to produce excess return per unit of risk. Our business is guided not just by excess return per unit of risk, but by an aligned investing philosophy. The combination of Athene and Athora and our balance sheet side by side with investors ensures investors at all points in time that we are fully aligned with them. Finally, as I'm sure Jim will pivot on to, purchase price matters. A purchase price matters strategy is very hard to pursue in a risk on everything rally. Nonetheless, we did that and the reward for doing that was certainly available and shown in 2022. But I believe the positioning we've taken out and our industry tailwinds really bode well for us going forward. 2023 will be a very good year for Apollo. We are on offense. We have $50 billion of dry powder across the platform. We deployed $160 billion in 2022. Fundamentally, we do better when markets are uncertain and when there is uncertainty in the economy. We expect FRE and SRE in 2023 to be up more than 20% over 2022, as I'm sure Martin will detail in his remarks. But we also have an amazing opportunity in our business to really focus on operating leverage. We have enough in front of us with the initiatives that are currently on our plate to not just meet our 2023 goals, but to meet our five-year targets. Alongside the three pillars of global wealth origination and capital solutions, we have added a number of growth initiatives, and I will not steal Jim Zelter's thunder as he lays out the things that are in front of us to focus on. Suffice it to say, 2023 will be a year of execution. We will return the business to operating leverage in 2023 and again in 2024. The team here Feels great. There's tremendous momentum. We are incredibly engaged and energized. And at the end of the day, what makes this a great place is the people. This is a group of hardworking, charitable people where the vast majority of the team, 93%, are involved in our giving programs. And our job is to be the single best place to be a partner in the financial services industry. And with that, I want to thank the employees for an amazing year. and the investors and analysts for all the time you've given us to understand what we're trying to do. And with that, let me turn it over to Jim.