Apollo Global Management, Inc. (New)

Good morning and welcome to Apollo Global Management's first quarter 2025 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 contain 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 earning 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 will now turn the call over to Noah Gunn, Global Head of Investor Relations.

Great. Thanks, operator, and welcome again to our call. Joining me to discuss our results and the momentum we're seeing across the business are Mark Rowan, CEO, Jim Zelter, President, and Martin Kelly, CFO. Earlier this morning, we published our earnings release and financial supplement on the investor relations portion of our website. As you can see, first quarter results marked a strong start to the year. We generated record fee-related earnings of $559 million or $0.91 per share, spread-related earnings excluding notable items of $826 million or $1.35 per share, and adjusted net income of $1.1 billion or $1.82 per share. In addition, we declared a cash dividend of $0.51 per share of common stock for the quarter ended March 31, representing a 10% increase from our prior quarterly run rate and consistent with the growth trajectory we provided at Investor Day. And with that, I'll now hand it over to Mark.

Thank you, Noah, and thanks to all of you joining this morning. As Noah started off, strong results, particularly amid a very volatile market. FRE of 559 up 21% quarter over quarter, or I should say year over year. SRE of 826x notables. AUM up $7.85, up 17% year over year. Record inflows, $43 billion in the quarter, inclusive of $26 billion at Athene. Solid origination quarter at $56 billion, led primarily by platforms. And most importantly, fund level returns strong. I'd call out two particular areas in the credit business. 8% to 12% now, depending on the fund, on an LTM basis. and in our hybrid area, 19% on an LTM basis. In communicating what's going on in this market, most of the questions I've received over the past month have been about the macro. So let me start there. It's never been more important to understand the manager philosophy and thus the direction of the business. You as investors, you should expect divergent paths for public asset managers. For us, purchase price matters in all markets. In debt and equity, in up markets and down markets, purchase price always matters. We are not a current period profit maximizer. That means we are willing to sit things out. We are willing to reduce leverage. We are willing to wait for the fat pitch. Three, we are relentlessly focused on origination as our source of excess return. We are not riding market trends. Hope and prayer, we have found to be very poor business strategies, but good strategies for life. Just a quick example of this. ADS was one-time leverage in January of 23. Prudent management of the vehicle took leverage down to 0.5 times in January of 25. We have earned the right to deploy in this market, and we expect an acceleration in returns rather than a reduction in risk. This is a totally different positioning than almost everyone else in the marketplace and reflective of the philosophy by which we run the business. Let me really pivot to macro. The last few years through Q1, I would describe as hyper US exceptionalism. Money from around the globe found its way into the US, primarily into our listed markets and indices. In the equity market, 10 stocks of the S&P 500 stood for 40% of the index. NVIDIA alone was larger than the market cap of every stock exchange in the world other than Japan. and those 10 stocks reached a height of a 60 PE on a current earnings basis. In credit, BBB corporate spreads tightened below 100 basis points. The last time that happened, 27 years ago in 1998. CLOs, tightest spreads in a decade. Every asset manager was offered a choice. They could continue buying into this trend, adding risk, adding leverage, reducing credit quality to chase returns, Or they could reduce risk, reduce leverage, prepare for the fat, or I should say fatter pitch, and rely on proprietary origination to try to get them through while public markets and the corollary in private markets did not offer acceptable risk-adjusted returns. For us, we found our return through origination and structure rather than reaching down the credit curve. We have built massive funding and reduced risk. We are well prepared. We believe we were one of the largest active buyers of assets post-liberation day, $25 billion in April alone. Interestingly, mostly in public markets. Public markets were the fastest to adjust from a price point of view and exhibited what we expect to see going forward, limited liquidity. The equity market pretty much at all times has liquidity, but investors are discovering what we have been saying for years, there just is no liquidity in publicly traded fixed income markets. And therefore, we expect extreme price volatility to the point where sometimes public markets offer better returns on a risk-adjusted basis than private markets. This philosophy impacts the two businesses. In asset management, we're sitting with $64 billion of dry powder, really strong investment performance. I'd highlight particularly in private equities. Private equity, their most recent fund, Fund 10, sitting with a net IRR at the end of the quarter of 19% versus 9% for industry peers over the same time period. Strong DPI. Purchase price simply matters. The philosophy and performance and product breadth is resonating with our client base. Jim will talk to you about what's happening in capital formation, but think about the five or six products that are really scaling. ADS is greater than $20 billion in three years. S3, our secondaries business, $10 billion in less than three years. AAA, greater than $20 billion in three years. ABF, over $7 billion in less than two years. Accord, $8.5 billion in less than two years. We feel good about what we've done. We feel good about the communication we've had with our investors and partners, and they understand our view of markets and how we have prepared for the more volatile environment that we are seeing today. In retirement services, the macro trend continued to play out. Exceptionally strong demand for all forms of guaranteed income, reflecting both higher rates and an aging population. We saw interesting competitive behavior in Q1. Think about this. Corporate spreads collapsed. Pre-pays of higher yielding assets hit records. And yet we saw increased competition. in the most competitive of the channels for retail sales of fixed annuities as competitors tried to make up shortfalls with volume and by taking on more risk in asset selection. We chose a different direction. Tighter spreads made it a great time to fund in less competitive channels. We raised $26 billion in the first quarter and another $10 billion in April. We invested that money more in cash, in treasuries, in agencies and paying down leverage. That is not without its cost, but it sets us up well in a volatile market. That move toward more cash and less risky assets cost us approximately $15 million in the first quarter, and if not deployed, will cost us some $30 million for the year. However, $14 billion was invested in April alone at 50 basis points wider spreads than those available in Q1. Lower rates now forecast in excess of those that we discussed at Investor Day, plus sizable prepays from the record-tight spreads in Q1, will create headwinds. The opportunity for us is a strong asset pipeline of proprietary origination, a continuation of the wider spreads we're seeing in April, and our ability to run the business in a volatile market because we have prepared for it. We run Athene with a principle mindset and a long-term focus. Athene is in an excellent position on an absolute basis relative to nearly all peers, having four different funding channels, which were especially important in Q1, against a backdrop of strong secular demand for retirement products. And as you can see, we are spring-loaded on both sides of the balance sheet. That does not mean it will be straight up, but we are well-prepared for volatility, and we will react accordingly with our principal hat on, making sure we get the best long-term outcome. Martin will detail for you all the puts and takes for the rest of the year, making a more difficult forecast in an uncertain environment, but one also filled with opportunity. Let me return for a moment to the industry that we are in. This is not unique to Apollo. This is the entirety of our industry. We have built this industry over 40 years out of the smallest bucket of our institutional clients called alternatives. We are fortunate. We now have another sizable bucket called individuals. We have a third bucket, which are retirement services companies who have witnessed the success of Athene and are starting to emulate. We also now have institutions who for the first time are entertaining the use of privates particularly private investment grade in their fixed income bucket, and we expect eventually we'll replace some portion of their public equity buckets with equity that is private, but that's for another day. Most interestingly, over the second half of last year and now the beginning of this year, we're seeing yet another source of demand play out, and that is in the form of traditional asset managers. Traditional asset managers are in the process of redefining what active management is. We always thought of active management as the active buying and selling of stocks and bonds. I now believe we will see active management as the public market beta married with appropriate private market assets in structures that investors understand, like mutual funds and ETFs and integral funds and otherwise. These traditional asset managers, I expect, will be large consumers of private assets and will reach clients that our industry probably would not have reached on its own. Whether we see the interesting innovations in model portfolios or the interesting partnerships, or we just look at what we're doing on our own, whether it is access to private credit in a daily liquid wrapper through the State Street PRIV ETF, or the income solutions we've launched with Lord Abbott through an interval fund, or it's introducing privates into retirement solutions through a target date fund partnered with State Street. Across the board, we are working with traditional asset managers to integrate private assets in an appropriate way into products that we in the industry never really expected. These strong sources of demand, starting with the original institutional base and now moving all the way for traditional asset management, I think portend very well for our industry, so long as we are focused as not growing too fast. Too fast to me, we are in the business of excess return per unit of risk. Therefore, we are able to grow only as fast as we are able to originate good assets that offer those risk-reward characteristics. Thus, our relentless focus on origination as much as we possibly can across the board in most of the asset classes. We're also seeing interesting innovations across our business that I would call out, not just in traditional asset management, but the early signs of progress in defined contribution in 401k and tax advantage, tokenization and digital markets, structured notes and portfolio solutions. I expect the level of creativity at our firm and in our industry to create interesting opportunities Again, boosting demand for private assets. And as you know, I am very bullish on the demand for private assets. And most days I wake up concerned more about the supply and thus origination. Uncertainty leads to volatility, but volatility historically has been our friend. We would rather have uncertainty from our current position of strength than any other way. With that, I'll turn the call over to Jim.