Apollo Global Management, Inc. (New)

Good morning and welcome to Apollo Global Management's second quarter 2024 earnings conference call. During today's discussion, all callers will be placed in a listen-only mode. And following management prepared remarks, the conference call will be open 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 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 Noah Gunn, Global Head of Investor Relations.

Thanks operator and welcome again, everyone to our call. We appreciate the opportunity to speak with you and discuss all the momentum we're seeing across the firm. Earlier this morning, we published our earnings release and financial supplement on the investor relations portion of our website. We reported solid second quarter financial results, which included record quarterly FRE of $516 million or 84 cents per share. an SRE of $710 million, or $1.15 per share. Combined with principal investing income, hold co-financing costs, and taxes, we reported adjusted net income of $1 billion, or $1.64 per share. Joining me this morning to discuss our results in further detail are Mark Rowan, CEO, Scott Kleiman, co-president, and Martin Kelly, CFO. With that, I'll hand the call over to Mark.

Thank you, Noah. Good morning to all. Thank you for joining us. Happy summer. Those in New York certainly know what I'm talking about. This quarter was a good reminder that great companies are built by honoring the fundamental promise they have made to their clients. In our industry, alternative assets, the fundamental promise that we make to our clients is excess return per unit of risk. Absent that, I'm not sure why we as an industry would exist. This promise, the delivery on this promise, was on full display across the entirety of our franchise for the quarter. True in private equity, in hybrid, and in our credit franchise. Just a quick tour of the quarter. In private equity, we announced three transactions in the past 30 days, Travel Corp, Every, and IGT Gaming. Truly an amazing stat. Team is working around the clock. If you think about the last decade of our private equity franchise, which is encompassed by funds nine and 10, 45 billion of capital, 13 billion already realized. In fund nine, as of the end of the quarter, 29 gross, 20 net. In fund 10, 47 gross and 20 net. Notwithstanding headwinds across the private equity industry by people who perhaps strayed from a fundamental promise, the team is doing an unbelievable job. In hybrid, or equity that is private, something we'll talk more about on Investor Day, AAA, which is our flagship vehicle, returned 10% over the last 12 months with on-track quarterly results. We now have positive returns in AAA 16 quarters in a row. To give you a longer-term perspective of why investors like hybrid, we've had two down quarters over the past 38. In a market characterized by volatility, by indexation and correlation, by key bets on very high-flying companies, the notion that you can achieve double-digit rates of return in the equity market and still have downside protection and reduced volatility is incredibly attractive to investors across the entire spectrum, from retirees to those seeking to accumulate. We have 17 billion of NAV now in our AAA vehicle, and as I've suggested, I expect this will be our largest fund over a period of time. Credit, which is the largest of our franchise, also had an amazing quarter. We were early in credit, and we have built a leading and a differentiated franchise. Recall that the differentiation of our franchise is a unique focus on investment grade, private investment grade to be specific. To give you just some of the performance stats for our major vehicles for the quarter, our total return fund, up nearly 2% for the quarter, 10% latest 12 months. Structured credit and ABS, 2% for the quarter, 15% for the latest 12 months. ADS, our direct lending vehicle, private market BDC, if you will, up 3.4% for the quarter, 17% latest 12 months. Direct origination, 3.8% for the quarter, 19% for latest 12 months. Across the entirety of the franchise, equity, hybrid, and credit, this was an awesome quarter. I start with performance because ultimately the reward for good performance is more work. In our case, more work is inflows. We had record inflows for the quarter for a non-PE franchise year of $39 billion. Institutional was $16 billion. Global wealth, $4 billion, up 50% versus the first quarter. and Athene had organic inflows of $17 billion. It was truly a great quarter across asset management. Asset management is generally benefiting from tailwinds. What we're seeing in our business is not the result of a quarterly spike or peak. We're seeing a fundamental shift in the marketplace, and it is happening across the entirety of our franchise. If you step back and think about what the big drivers are, certainly the big driver in credit We are looking at three really interesting trends. Think of the places that capital is needed in our economy over the next decade. We are going to spend an awful lot of money on next generation of infrastructure for data centers and AI. We are going to spend an equal amount of money for energy transition. And we are going to spend a lot of money on what I'll call normal infrastructure. All three of those things are long dated. Many of them are structured. Many of them are complex. These are the kinds of things that are not well suited for institutions who are funded short. These are exactly the kinds of transactions in the investment grade market that we expect to drive our business and are driving our business. The way we look at the driver of our business, certainly in credit, is by originations. Recall that we have a $125 billion target for this year for originations. We originated $52 billion in the quarter. including $11 billion from Intel alone. We are quickly approaching the $150 billion target that we set for 2026, and the team is unhappy to hear this because they know I'm going to revise the number up. Just to give you a sense for how strong the trends are, year to date we've deployed 17 billion in next generation infrastructure alone. I expect this not to be a one or two quarter blip. I expect this to drive our business over the next decade. against the backdrop of regulatory change, against the backdrop of government borrowing, and all the other trends that we know are happening in fixed income. Origination also drives for us capital solutions. Capital solutions fees and revenues are the byproduct of a successful origination franchise. Fee revenue totaled more than $200 million. We are on pace for a record year. Our pipeline is as strong as it has ever been, and we will continue to build out the business both by industry and by geography, including major advances in Australia and in Asia, because the need for originated, high-quality, investment-grade assets with spread is global. Let me turn now to Athene and retirement services. Retirement services is now in its 15th year. We've basically grown our earnings over 15 years at 15%, including 26% last year. Just like in asset management, Good performance is ultimately rewarded with more capital. In Athene's case, this is the ability to attract strategic investors to support Athene through its sidecar, which we call ADIP. ADIP is the capital engine that helps Athene scale its business and run a truly efficient franchise. ADIP 2 has now closed and raised $6 billion, almost twice as much as ADIP 1. As far as we know, this is the largest third-party capital sidecar in the retirement services industry. For the quarter, Athene hit every operating metric. New business volumes, underwritten returns, credit quality, expenses, surrenders, capital. The quarter was impacted by profitability for the quarter was impacted by the roll-off of exceptionally profitable business, which was put on during the peak of COVID. That same roll off of business will also occur in the next quarter. Also during the quarter, the disagreement over the direction of interest rates toward the beginning of the quarter provided us opportunities to do additional hedging, which we did for the quarter. The roll off of this business and hedging essentially cost us growth for the quarter and will cost us growth for Q3. We expect by Q4 the business to grow and to be back on trend. The result being that we will achieve, in our estimation, mid single digits SRE growth for the year, accounting for the two lost quarters, and we will return to trend double digit growth next year. Martin will detail further and will dissect the pieces of this business, which I know are of interest to many of you. Athene is on track for 70 billion of organic inflows for the year. When I step back, we are simply fortunate to have delivered on our core promise to customers and to be in a market and in an industry that is driven by long-term tailwinds. We have essentially four tailwinds in front of us. The first I've already detailed, which is this voracious need for capital, most of which we believe to be investment grade. That will drive our fixed income franchise, fixed income replacement. The second, retirement is a fact of life. We are all getting older. We have so far over the first 15 years at Athene One, by producing incredibly good returns, not just for investors, but for customers. But essentially what we have done is we have modernized existing products. The opportunity now exists for an entire next generation of products to serve retirees, whether they are in the traditional insurance sector or they are in the vast pool of 401k, which heretofore has been off limits to most alternative assets providers. The third, our entire industry over a 40-year period has been built out of a small bucket of the institutional marketplace. We are watching an individual marketplace led by family offices and high-net-worth individuals that I believe will grow to be the size of the institutional market over time. And finally, and a notion that we will spend lots of time on in Investor Day, we are watching investors fundamentally rethink the difference between public and private. We grew up thinking that private was risky and that public was safe. And that probably was true 40 years ago. Private represented three products, private equity, venture capital, and hedge funds. And public diversified portfolios of stocks and bonds. What if our fundamental premise is wrong? What if private is both safe and risky and public is both safe and risky? The entire basis on which we have constructed portfolio allocations will need to be rethought. I don't have to guess at this. This is already happening in the fixed income bucket of our large institutional clients who are making daily tradeoffs between public investment grade and private investment grade. It is happening in fixed income first because there are helpful gatekeepers or signposts called rating agencies who help investors discern quality between public and private markets. It is also held by that there is not real liquidity in public fixed income markets. So the trade-off of liquidity is not that immense. The opportunity in front of us over the next few years is fixed income replacement, which will provide a turbocharge to an otherwise healthy business. But make no mistake, replacement is coming for the equity business as well. We will end up with a portion of public equity that decides that equity can be private as well. And we will have access to other parts of our institutional investors allocation. We look forward to seeing you at Investor Day. And it certainly has been an active summer. And with that, I will turn it over to Scott.