Apollo Global Management, Inc. Q3 FY2024 earnings call

• Strong third quarter financial results: record fee-related earnings, near-record spread-related earnings, and adjusted net income at second highest level on record.
• Investor Day recap: over 3,000 people participated live and 54,000 accessed replay; outlined 5-year plan with targets for FRE, SRE, adjusted net income, and capital generation.
• Origination highlights: record $62 billion of originations in Q3, $194 billion YTD; ATLAS had strong quarter with $50 billion cumulative origination and $5 billion equity capital raised; Athene had $20 billion organic growth quarter; retail fundraising on pace to increase 50% Y/Y in 2024 without a flagship fund; third-party insurance AUM ~$100B expecting to double in 5 years with Jeff Jacobs as CEO of third-party insurance business.

Fee-related earnings (FRE) reached a new quarterly record, with $531 million or $0.87 per share in the third quarter, and surpassed $1.5 billion on a year-to-date basis. Spread-related earnings (SRE) were near-record at $856 million or $1.40 per share. Adjusted net income was $1.1 billion or $1.85 per share. In terms of revenue contribution, FRE and SRE are key components. For FRE, credit management fees increased 20% year-over-year, with third-party credit management fees growing more than Athene and Athora. SRE had robust organic growth of $20 billion in the quarter, with net spread excluding notable items increasing 16 basis points quarter-over-quarter.

• Aim for average annual FRE growth of 20% and average annual SRE growth of 10%, with FRE and SRE reaching $10 billion and $5 billion each by 2029.
• Adjusted net income to more than double to $15 per share by 2029.
• Capital generation target of $21 billion.
• Expect revenue growth trends to largely persist in Q4, supported by organic capital formation target and strong origination pipeline.

• Regulatory and capital regime differences in the insurance and retirement spaces, which could impact growth if not managed properly.
• Competition in origination, as other firms may enter the market and compete for good risk to grow their businesses.
• Potential impact of extreme moves in interest rates on the blended growth of the business after core earnings growth.

Q: Alex Blostein of Goldman Sachs asked about progress on third-party fundraising, particularly in the insurance channel, and flows, fee rates, and addressable market.

A: Marc Rowan and Jim Zelter responded, discussing the open architecture flywheel, partnership with insurers, and the nature of third-party insurance AUM and growth potential.

Q: Craig Siegenthaler of Bank of America inquired about retirement outflows and their trend in 2025.

A: Marc Rowan and Martin Kelly stated that runoff of insurance liabilities is highly predictable and on the to-do list to update 2025 forecast, with no unexpected trend expected.

Q: William Katz of TD Cowen asked about the retail platform opportunity and expense cycle.

A: Marc Rowan and Jim Zelter talked about the early stages of the retail channel, the pyramid of the retail channel, and that expenses are contemplated in budgets with requests for services rather than cost pressure.

Q: Steven Chubak of Wolfe Research asked about the retirement opportunity and near-term allocations in target date funds.

A: Marc Rowan responded, emphasizing the potential of private assets in retirement portfolios, the success of Athene, and the opportunity to rethink retirement product sets.

Q: Michael Brown of Wells Fargo asked about the AAA sleeve in the CIT offering and expansion to wire houses.

A: Marc Rowan stated that AAA is being adopted in portfolio allocation, with a vision for portfolio solutions in the future but noting it's early days for pipeline development.

Q: Patrick Davitt of Autonomous Research asked about retail distribution margin expectations.

A: Martin Kelly responded, stating no headwind from distribution ramp as costs are netted against revenue or expensed as incurred, with migration from upfront fees to trailer fees.

Q: Brennan Hawken of UBS asked about origination equity sources and platform rationalization.

A: James Zelter responded, discussing debt and equity origination, platform rationalization with centralized oversight, and the importance of origination for growth.

Q: Brian Bedell of Deutsche Bank asked about origination context and allocation changes if goals are exceeded.

A: James Zelter responded, discussing origination spread and scale, and the consistent philosophy of syndication and open architecture.

Q: Ken Worthington of JPMorgan Chase asked about impact of rate move on hedges and 4Q spreads.

A: Martin Kelly responded, stating no change to hedge posture as plan is to maintain net floating rate position, and rate move is a component of earnings but no change to outlook.

Q: Benjamin Budish of Barclays asked about SRE guidance and factors behind better-than-expected results.

A: Martin Kelly responded, stating strong top line growth in SRE quarter and better-than-expected spread on assets at margin, with Q4 expected to be similar to Q3.

Q: Daniel Fannon of Jefferies asked if changes to alternatives allocation for retirement services are complete.

A: Martin Kelly responded, stating that changes are complete with AAA representing ~80% of the alts portfolio, and repositioning behind us to support sustained returns.

Q: Michael Cyprys of Morgan Stanley asked about ADIP use and dividend from Athene.

A: Martin Kelly and Marc Rowan responded, discussing ADIP participation, consistent dividend from Athene, and caution about capital regimes in different regions.