Q4 2020 Apollo Global Management Inc Earnings Call
Yeah.
Good morning, and welcome to Apollo Global management for fourth quarter 2020 earnings Conference call.
During today's discussion all callers will be placed in a listen only mode and following management's prepared remarks. The conference call will be open for question and 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 and 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 constitute an offer to sell or a solicitation of an offer to purchase.
And interest and Apollo front I would now like to turn the call over to Peter Mintzberg head of Investor Relations.
Thanks, operator, and welcome to our fourth quarter, 'twenty and 'twenty earnings call. As many of you know I joined us for them and November as head of Investor Relations and I'm very glad to be here with all today for my first earnings call and wave Apollo joining me. This morning are Marc Rowan, Josh Harris and Martin Kelly.
Jim's elder and Scott Kleinman are also underlying for questions I would like to turn it over to mark to kick off for our comments for today.
Thanks, Peter Good morning, everyone I'm excited to be here. Following the conclusion of my very poorly planned recent sabbatical.
And I look forward to engaging with our investors and shareholders as I transition into my new role as you will hear and more detail. The Apollo platform is strong and resilient extra.
Extremely well positioned for growth and today's landscape as our exceptional 'twenty and 'twenty results have demonstrated.
Before I turn to the quarter and a year I want to review the announcements that were contained and the various communications last week I will first touch on governance and leadership and lastly, our investors.
In terms of governance, we believe the changes described and Leon letter last week were an important step in our evolution from a public private partnership to the standards set by the best public companies.
Our industry is in transition our firm is in transition.
All of us for moving from the small private partnerships that we started life as two important components of our more global financial system.
Proper governance, and transparency are going to be essential to play the role that we are supposed to play in this marketplace.
Specifically as a firm we are committed to moving promptly to our governance structure that will enhance our board with additional diversity.
Possessing different viewpoints to bring experience to bear that is needed to help drive our business forward.
We are committed to moving our board to two thirds independent.
Over the near term and we are committed to appointing a lead independent director, who will actively and regularly engage with the management and the board.
As it relates to directors and we have already made substantial progress.
And last week, we announced that Pam joiner and sit and Luca Jay will be joining our board effective March 1st further we are in active dialogue to bring additional high quality talent onboard to help us drive the business forward and our board of directors level.
Beyond the board changes.
And as we have alluded to we have begun a process with our independent committee of the board to promptly evaluate and review the steps necessary for Apollo to adopt a one share one vote structure and other changes that will be required to be eligible for us to be included and a broader set of market indices.
These changes I believe would be incredibly beneficial for our firm and again further reflect our commitment to moving to a more modern state given the important role that we play and the financial landscape I believe the independent committee of the board will return promptly with their recommendations and we will take it from there.
Away from the governance changes, we are making a series of changes to Apollo's leadership.
Leon will be retiring as CEO and will remain chairman of the board Josh will remain a cofounder and member of the Board and Executive Committee working with our largest investors evolving our integrated platform and expanding the strategic opportunities, where we look for investments.
Scott and Jim will be assuming additional responsibilities as we all realign our areas of focus we are fortunate to have and incredibly deep bench of talented partners, who have been together a very long time.
Leon and Josh and I have been together and been partners for more than 30 years, we have been through all kinds of market cycles, and all kinds of events and I expect our partnership to endure for a very long time.
Having reviewed governance and leadership, let me now turn to speak about our investors.
This has been a busy week plus of communication with our investors.
We have and an opportunity to speak with a very broad cross section of our limited partners.
And their advisers and consulting relationships regarding the conclusion of the conflicts Committee review and the governance and leadership changes.
The vast majority have indicated that they are satisfied with the announcements, which they and we believe strike the right balance for the firm.
Perhaps most importantly, they appreciated the seriousness with which we took the process and the transparency.
As we expected a smaller portion of our investors will need time to consider these events and the changes we are implementing and in some instances they may actually want to see how these changes unfold.
We realized that we may not be able to satisfy each and every off more than 100, and excuse me 1005 hundred institutional investors.
But we have made tremendous progress.
We must continuously strive to improve our process and governance and.
And most importantly to deliver superior investment returns to our investors.
We expect third party fundraising to build significantly now that we have addressed these issues.
The strength of the business shows that even in this past quarter with these headwinds we continue to raise money across a number of funds and syndicated more than 9 billion of investments amongst our limited partners and insurance affiliates.
As I said the business powers ahead.
As Josh will discuss this was a record year for Apollo across multiple metrics.
And I was at a record high increasing by more than 22 billion and this quarter alone the momentum and this business is strong and as we implement these various changes I expect that momentum to increase.
Now to take a step back.
This is a unique time for me to become CEO of Apollo.
We are a growth business.
And we are fortunate to be a provider of a service that's an incredibly high demand, namely investment returns.
In addition to the product we provide our market is growing and it's growing dramatically.
We primarily serve retirees either directly through our insurance affiliates and the form of guaranteed income or indirectly with our yield and opportunistic products through institutions like retirement systems pension plans endowments sovereign wealth funds and others.
All of these clients. We serve are looking for investment returns and it is our job to continue to grow our front end, meaning our ability and capacity to generate.
Good returns per unit of risk assumed.
While the AUM growth. This year is nothing short of substantial.
And spectacular.
Growing our AUM is just a measure and not a goal and itself.
It is the result of good performance.
For good managers like Apollo and the ability to raise money is not the primary governor of our growth.
It is our capacity in difficult markets to source investments that provide above average returns for the risk undertaken.
As long as we maintain our capacity and grow our capacity to produce returns and.
AUM will follow.
I feel fortunate to be leading and incredibly healthy business.
I believe we have a unique opportunity Apollo.
At Apollo based on the strength of our people coupled with our investment expertise across numerous sectors and the benefit of our permanent capital vehicles.
We are strategically positioned at the intersection of growth yield and value.
Our particular edge is being able to source assets that cater to a range of capital structures flow from lower yield insurance company balance sheets to high return opportunity funds.
And a market that is characterized by indexation correlation and volatility.
I believe that presents a unique opportunity for Apollo style of investing.
To really stand out and Apollo portfolio is fundamentally different and a blackrock portfolio of Blackstone portfolio or anyone else elses portfolio. The.
The unique skill.
<unk> unique DNA of Apollo is to source investments up and down the risk reward spectrum that represent good returns per unit of risk undertaken.
So long as we stick to that.
And that tenant we will continue to be successful and we will continue to grow our firm.
I would be remiss not to take a moment to thank Apollo has more than 500 employees around the world.
They have worked tirelessly and a very difficult year to achieve the impressive results we've announced today.
I'm extremely proud of the extraordinary team their perseverance and dedication they have demonstrated throughout this very interesting year with that I turn it over to Josh to cover our strong results for the year.
Thanks, Mark and we're all really glad to have you back from semi sabbatical and and you're up and coming Ross CEO.
I'd like to begin by acknowledging the unprecedented challenges we've all faced this past year and individuals' as an organization and our society.
The impacts of this global health and economic crisis, including illness.
And we'll losses record unemployment and <unk>.
Stream market volatility are far reaching and wood.
And we felt for a long long time.
You too all the essential workers, who have worked tirelessly to get us through this difficult time.
And who continue to push our country forward.
Despite this challenging backdrop.
Paolo.
And very strong results for the year validating the resilience and differentiation of our business model.
We acted quickly to help our investors and.
All of whom are the frontline workers getting us through this crisis, while at the same time, helping many great companies during extenuating circumstances by per.
Providing liquidity solutions.
We recorded we reported record inflows of 123 billion.
And achieve deployment activity of 88 billion.
We generated record fee related earnings of $2.37 per share, reflecting 15% growth year over year and.
And for surpassed $1 billion of FRE for the first time and our firm's history.
In addition, we've exceeded $450 billion a day of U M and.
The other milestone for the firm.
For the fourth quarter, we reported distributable earnings of 72 cents per common share pretax fee related earnings or FRE of 63 cents per share and a cash dividend of 60 cents per share.
We ended 2020 at $455 billion of AUM growing 38 per cent year over year as a result of a record inflow year, which included $13 billion of inflows for the fourth quarter.
Organic growth accounted for 16 per set.
Of the 38 per cent increase and a U M.
With two insurance transaction, creating the remaining 22 per cent increase.
Specifically, the 123 billion of inflows for the year was driven by <unk>.
72 billion of inflows from the two notable insurance transactions.
Which created additional scale for both Athene and a thorough.
17 billion of organic growth and our insurance platforms and.
And 22 billion of third party capital raising across our new large scale origination platform Aesop.
New vintages of existing fund franchise, such as hybrid value and a cord and.
And new product initiatives, including the IPO of our Apollo strategic growth capital stack.
And the launch of our first infrastructure opportunities fund.
Turning to deployment.
The breadth and differentiation of our platform resulted in $88 billion invested this year on behalf of our clients.
This deployment included repositioning and growth and the assets of Athene and and as far as balance sheets. Following the two transactions during the year.
Organic growth at the insurance platforms.
And growth and our private credit origination business.
And a year marked by so much change our role as a capital solutions provider for companies greatly expanded.
Our original origination capabilities continue to broaden and now span middle market and large cap corporate lending as well as numerous asset based lending categories.
We see a large opportunity for Apollo to continue leveraging its intellectual capital across credit private equity and real assets to meet the needs of our clients and provide solutions to a diverse set of companies.
And the fourth quarter, we provided $9 3 billion and spoke off the run.
Long dated capital solutions for investment grade companies.
Among these included a $4 billion dip financing for Hertz.
Which provided a structured solution for its fleet.
A $3 1 billion dollar transaction for Anheuser Busch.
Inbev container manufacturing business.
Each of these deals was customized to the needs of their respective company.
And demonstrate our ability to create and widespread spectrum, a bespoke financing solutions to corporations.
Turning to FRE the momentum we generated through our robust AUM growth and capital deployment.
Translated into growth and our fee related earnings.
Reached $2.37 for the year and.
And grew 15% year over year.
Management fees grew to $1 six $5 billion up 11% year over year and demonstrated very little correlation with volatile public markets.
We've made several important investments across the platform in 'twenty and 'twenty four.
Focused on expanding our origination capabilities.
Furthering the new growth initiatives, such as our infrastructure impact and spec strategies.
Scaling our technology and infrastructure groups across the firm.
In addition to the strong financial results, we achieved in 'twenty and 'twenty Apollo and its portfolio of companies focused significant attention on providing support to one another and our broader communities.
We continue to prioritize and realized the full value of environmental social and governance factors.
Straw and and believe strongly that seizing ESG opportunities makes us better investors and better stewards.
And by positioning upon our funds' portfolio companies for sustainable success.
Just as important.
We believe that or Paul can and should have a positive impact on society beyond its businesses, helping to make the world a better place and improving People's lives and.
In line with that mission, we were proud to launch a citizenship grant program matching employee charitable contributions and.
And rewarding employees volunteer time.
This year, we donated more than $50 million philanthropic causes and contributed 3000 and 550 hours of service.
Through the matching program employees have donated more than 1500 different nonprofit organizations to date.
To Echo Mark's comments, our firm's resiliency and strong business model and strategically position us for success and today's evolving market landscape.
Our financial position is strong anchored by the 273 billion of AUM and permanent capital vehicles.
60 per set of our total AUR.
Our fee related earnings continue to grow through varying market environments for close to 100 per cent of our pretax earnings in 'twenty and 'twenty.
Derived from FRE, giving our shareholders high visibility into our core earnings drivers.
[noise] ahead.
We anticipate increased demand for Apollo investment expertise.
Investors continue to struggle with sourcing yield.
Driving demand for our proprietary and scaled origination.
Investors increasingly seek global scaled asset managers.
With the ability to create solutions for a wide variety of mandates across lower cost of capital such as insurance to higher return opportunistic capital.
We believe the path forward is bright for Apollo.
And we're incredibly excited to continue on a strong trajectory.
I speak for the entire management team and expressing our deep gratitude.
And so our bench of talent.
Who've come together to drive the success we've experienced this year.
Thank you.
Very much looking for it to what 'twenty 'twenty, one will bring for our firm.
With that I'll turn it over to Martin.
Thanks, Josh let me touch on F. R E D E and dividend to start with.
For the fourth quarter and management fees grew 3% over the prior quarter and 13% over the fourth quarter of 2019.
And by growth and fees for investing and the assets of our insurance clients as well as deployment driven growth and our credit and realized its businesses.
For the full year, 'twenty and 'twenty management fees grew 11% over the prior year.
Transaction and advisory fees for 81 million and the quarter driven.
Driven by capital solutions transactions and private equity activity.
Compensation grew 8% over the prior quarter. This reflects our continued investment and growth initiatives across the firm, including support for our insurance businesses.
Head count grew by more than 20 per cent and each of the last two years driven by the growth areas that choice just highlighted.
Non compensation costs grew 12% over the prior quarter and.
And included costs related to the independent review.
For the fourth quarter, we announced a dividend of <unk> 60 per share and after tax distributable earnings of 72 cents per share and.
Highest quarter since the fourth quarter of 2019.
Our strong FRE of <unk> 63 per share was supported by net incentive earnings of 15 cents per share.
Yeah.
Turning to incentive realizations, we realized a $187 million of gross performance fees for the fourth quarter, primarily related to our credit strategies fund.
Which returned 24% and 2020.
Gains from sales in fund eight where returns to Lps as a result of the impairments recognized and the first half of 'twenty and 'twenty.
At the end of the fourth quarter, the netting hole and fund eight had been reduced to $266 million equivalent to six cents per share of delayed and that carry.
Down from $1 $1 billion as of the second quarter.
Fourth quarter reduction was driven principally by a secondary transaction for a variety of during the quarter.
As a reminder fund eight remains in full carry with a current gross and net IRR of 16 and 11% respectively for.
Callback obligations of 31 cents per share that we report and our earnings release are related to older legacy funds, including funds and seven and natural resources one spin.
Specific to those funds and a non cross collateralized across other funds.
And as we've noted and the POS we do not expect any of these COVID-19 claw back and amounts to become cash obligations for at least several years from now.
Deployment and our funds was $2 5 billion and our drawdown funds was $2 $5 billion and the fourth quarter and $17 billion for the full year in line with annual averages.
And our broader measure of deployment, which reflects the breadth of our origination business was again strong at $24 billion for the fourth quarter and $88 million for the year.
Fourth quarter deployment was supported by the large origination activities Josh highlighted.
As well as a pick up and middle market and commercial real estate lending.
Our dry powder for investments across our fund complex was $47 billion at the end of the quarter.
Of which $21 billion has the potential to drive management fees when invested.
On performance.
Moving on to investment performance during the fourth quarter, our private equity funds portfolio appreciated by 13% driven.
Driven by strong performance across our funds public and private Holdings fund.
And eight and fun and I appreciated by 10% and 17%, respectively, driving an increase and the net carry I said to $1 82 per share.
Fund eight is now marked at a multiple of invested capital of one six times.
And we expect it to continue to create value as the portfolio matures.
Fun, though I and cross into carry for the first time in the fourth quarter.
For the full year, our private equity funds portfolio appreciated six 9%, which compares favorably to the performance of the S&P value index down 1.4 per cent.
And credit funds aggregate portfolio returns and four 4% during the quarter.
Through a very volatile year and the credit markets, we were able to protect our portfolios on the downside and outperformed broader indices.
Notably for 'twenty and 'twenty, our global corporate credit business generated a six 7% total time.
And over 300 basis points of outperformance to its benchmark.
In addition, the performance of broadly syndicated loans and our credit portfolio.
Exceeded the S&P LOI by approximately 140 basis points for the year.
High yield bond performance exceeded the Bofa Merrill Lynch high yield index by nearly 800 basis points for the same period.
Our strong credit performance has been driven in part by the excess spread we have been able to generate for insurance clients, which stems from our differentiated and expanding origination capabilities.
And real assets, our overall return for the quarter was up three 1% driven by broad appreciation across the portfolio.
And as you continue to have a de minimis impact on our performance in both private equity and credit this quarter.
Apollo remains in a very strong liquidity position with approximately $1 $6 billion of liquidity available on our balance sheet.
Our net economic balance sheet after debt and preferred stock was approximately $4.80 per share at December 31 ahead of the $4.25 at the end of 2019 and prior to the pandemic induced to sell off.
To Echo Josh we're very pleased with that 'twenty and 'twenty earnings driven by robust growth and resilient and fee revenues.
We're appreciative of the support that we've received from employees and shareholders investors and partners throughout the year.
And look forward to engaging with you all further in 2020 and beyond.
With that I'll turn the call back to Peter.
Thanks, Martin that concludes our remarks for the day operator, please open the line for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Our first question comes from Glenn Schorr with Evercore. Your line is open.
Yeah.
Hi, Thanks for that and watch.
Maybe one for Mark.
But the top bid.
Sure I think it's good to see back back to the growth and growth from on the front foot, but with credit insurance, let's call it 75% of assets private equity already huge and great.
And I'm just curious as you think about building for the next decade.
We're real estate infrastructure retail capital markets like the other areas to grow and broaden Apollo to help investors with your Michigan and I'd be curious to get your thoughts on that.
Okay, you you touched on some of it but I'll start with how I think.
The limit R&R growth, which you are referring to is not and the ability to raise money. It has the ability to deploy it sensibly and and Apollo esque manner.
In the private equity business. We are large we will continue to grow but you're right that will not be a source of massive growth.
And the credit business is large in a sense that we talk about but in the context of the markets that we participate in and we're just beginning we have an amazing opportunity in credit, particularly with respect to origination.
In the real estate market, which you also touched on we have and immense real estate footprint, we simply don't group it in our financials and our assets because much of what we do and the real estate business is and yield.
Rather than an opportunity we are building the real estate business. The real estate business is raising funds in the U S opportunity market are in.
And the Asian opportunity market and the net lease market and the debt market and in the core plus market on every one of our insurance company balance sheets real estate is and expanding category and I would expect our real estate business to increase we have a lot of white space, but it has to be done and and Apollo esque way.
Infrastructure infrastructure, one double digit rates of return in the infrastructure market back out and the market with infrastructure to again, an area that I expect to expand and a big way impact exactly the same thing.
Every one of these funds the thing that ties them together is.
And he's not the desire to simply go out and raise your AUM, but the identification of an opportunity that we believe reflects Apollo b Apollo investment brand fundamentally means that we believe we are taking less and less risk per unit of return and every point and the capital structure from investment grade down to the most off.
And for Tunis stick.
To maybe I'll drone on for one more second I think one of the biggest opportunities. We have is to massively expand our front end, which is our capacity to generate returns. This is bringing onboard teams.
This is buying and platforms. This is also building organically from initiatives already underway within Apollo.
And I'll stop there.
Thank you. Our next question comes from Craig Siegenthaler with Credit Suisse. Your line is open.
Thanks, Good morning, everyone and hope, you're all doing well and staying healthy.
My question is what is the potential timeline for this full C Corp conversion.
So we will break Craig and I'll give you an initial response and then I'll turn it over to Martin So and.
As I mentioned, we have asked our independent committee to promptly study and give us recommendations with respect to moving to one share one vote and the other changes necessary.
To be eligible for broad index and <unk>.
Index inclusion, which would include a full C Corp conversion I would expect we will hear back from them.
And no later than our next conference call with that as to the specific steps and I'll turn it over to Mark Yeah, Craig because theres different ways that you can achieve inclusion and and indices and so with <unk>, we're very familiar with what they are.
And so we're just you know they have different impacts and different timelines associated with and frankly, so we're working through all the details around that and the approvals that will be needed from different constituents and and view of of of what different outcomes for my team. So so you know what.
And where.
We know we know what's ahead of us for working through all the considerations and we'll update you in due course.
Thank you. Our next question comes from Alex.
Low spin flow seen your line is from Goldman Sachs. Your line is open.
Great. Thank you good morning, everybody.
Mark I was hoping to dig in a little bit more into the L. P feedback since the completion of the investigation you mentioned that you expect fundraising dynamics to build significantly from here and maybe spend a minute on sort of the path and the timeline for this acceleration we strategies do you expect to be most active.
<unk> to the fund raising outlook for Apollo over the next 12 months and then when you take a step back other common characteristics between O piece, there are sort of satisfied with the process and the results from this investigation.
Versus those that sort of need more time and as you said in your earlier remarks. Thanks, Okay. So I'll hit it upfront as to the specific strategies I'm I'll turn to Scott and Jim to talk about the strategies that are active and the market and where we think we're going to make the most progress in 'twenty and 'twenty one.
We've done a lot of limited partner and consult and calls that's just not just me and that's the entirety of our team.
The vast majority of feedback from the Lps and consultants to date has been positive.
And I appreciate the seriousness and transparency and thought and we have put into this process.
S. G are not just three initials to them or to US. This is something that we have to live every day.
They have acknowledged that the report by Dechert substantiated, what we told them no involvement by Apollo or its employees and no wrongdoing on Leon as part.
And they've commended us on the actions, we've taken with respect to the governance changes and the succession planning.
For the vast majority of L. Ts.
And that will be enough. They think we've struck the right balance.
For some Lps as I've said, they will want to see how these changes develop and for some they will want to see these changes are fully implemented I do not believe that there is a specific characteristic across limited partners, who perhaps are fully satisfied versus those who are less.
And fully satisfied at this point and time.
But I will note with 455 billion and AUM and 1500 institutional investors.
Something is happening and our funding business almost every day.
And the fourth quarter a number of people.
Hit pause simply to wait to see the outcome I believe and the first quarter, we will see.
Some of that pause simply come through and then we will get stronger every day.
As to the specific products, one and I start with Scott and then Scott I'll hand, it to Jim sure Silicon the opportunistic side as Mark touched on a little bit earlier, you know we're in the market now with our infrastructure.
Infrastructure with Asian real estate with impact we are we have raised and continue to raise additional spacs, we'd expect to see more of that we have some new products that we're working on that debt you know in all likelihood will be coming out and a meaningful way this year as well.
On the credit side, a number of evergreen a number of evergreen funds that are better and have already been fundraising and continue to fund raise.
And you know large cap originations that are often syndicates for Lps as well, so quite a quite a bit of activity expected for 2021.
Yeah.
Thank you. Our next question comes from Robert Lee with K B W. Your line is open.
Alright, Thanks for taking my questions and more quite a move from sabbatical CEO. So I hope congratulations are in order for you.
I'm just curious you know there's a lot of going on in terms of no investment and business could you maybe update us on how you're thinking about all of these initiatives.
And we should be thinking about how they will impact kind of FRE margins going forward.
You know you are already pretty high investment and best in class. So where do you think we go from here is I guess my first question.
Okay.
Why don't I take that.
So clearly and hind side, taking a sabbatical and the middle of a pandemic is a very bad idea.
First time, I went nowhere and I did nothing but in some sense. It actually accomplished everything it was supposed to accomplish.
The first half of 'twenty and 'twenty.
And I worked like and associate new to affirm we closed two of our largest insurance transactions in the insurance marketplace.
And by the end of June I needed a little bit of a break and when I say it accomplished what it was supposed to accomplish.
With me sitting there every day the team that is way smarter than I am.
That really makes things happen and the insurance business never got to spread their wings. We now with six months to have passed we've settled into a routine that is completely sustainable where I am involved and those things that add value, where I can add value, but where the day to day responsibility is in the hands of people who as.
And you will meet them in our various investor presentations, you will come to the same conclusion that I have which it gets better once you get past me.
And as it relates to FRE margins.
But in the context of more of our five year plan 15 months ago, we sponsored and Investor day and.
And I believe when we rolled out the target and we said 600 billion and AUM.
And I was watching the audience a number of phases dropped and thought that goal was unsustainable.
Or unrealistic 15 months later, we're halfway towards that target.
And the outcome of that target since AUM is the fundamental driver of revenue.
Is mid double digit growth for a very long period of time.
As to growth and investment and any particular year.
It is not the revenue where the AUM that I. So much focus on or that you should be focused on the decision and every any given year as to whether we will grow double digit low or double digit high will be primarily driven by the pace of investment in the front end.
And we balance that very carefully as you've heard me say already I believe we are and a growth business, we serve people who aren't desperate for yield our institutional business is growing our insurance business is growing and our retail business is growing.
We need to make sure we grow the front and consistent.
Consistent with the potential we have rather than focus on growing AUM.
Hopefully that answers your question.
Thank you. Our next question comes from Ken Worthington with J P. Morgan Your line is open.
Hi, good morning.
And maybe more broadly and private equity Apollo tends to be and at a value investor and U S market valuations are elevated based on a historic perspective.
I know you announced pipeline looks looks quite good but valuations are now quite elevated and should we expect the pace of investment to start to slow here and then maybe a 10th tangent.
Does the spec market growth big enough to maybe further drive and invest a further drive competition here are making it even harder to invest new investment new investor dollars. Thanks.
Sure. So look as I've said in the past.
Market index is arent necessarily a good indicator of of what's going on in across the breadth of the market the.
Pipeline and the P. E business is is really stronger now than it's been at any time, even through the through the crisis.
And so I would expect price estimate a bigger than our average deployment year and and private equity. This year just based on what we're seeing and and what we have teed up even in the short to medium term so.
I actually think our deployment across private equity hybrid value and number of our other opportunistic funds notwithstanding the market backdrop is still it's still incur.
Incredibly strong.
As far as your question around Spacs.
And look we ultimately cease backs as a interesting asset class. It is not a flash and the Pan Spacs are here to stay for a lot of fundamental reasons in some respects is a competition sure, but we've always had competition.
And if anything you know how and Apollo is now proven our ability to successfully issues backs are we we've issued a number we have several more and the pipeline and see it as a real opportunity to add to the asset category footprint that we have and I think youll continue to see that be.
And increasing part of how we approach the market Oh, you know across the spectrum of risk and return.
Great. Thank you.
Thank you. Our next question comes from Bill Katz with Citigroup. Your line is open.
Okay. Thank you very much and mark congratulations as well and maybe a question for for Martin just to try to tie together some big picture with maybe the operational side of things could you dimension in the fourth quarter, how much of the G&A or other expenses were related to the the inquiry and then as you think about 2021 could you dimension a little bit about where you are.
You sort of see either comp ratio or the non comp, but FRE drivers just given mark's commentary about growing the front end.
Sure. So I think bill the step up in Q4 from Q3 on non comp was effectively explains or.
It was explained by the cost of the review.
And so as we look forward.
And it's a slightly different answer for comp and non comp.
We are growing and what we've added head count and so it's natural to expect that the cost of this continues to increase.
On the non comp side.
We're looking at and where and engaged and new premises and many other offices around the world, including both New York and London that comes with a cost.
And so so you know we manage non comp very carefully and tightly.
But you know as the head count growth from increases and the and the needs to support all of our employee base increase and so it's sort of other costs.
And the comp comes back to I put that in the context of a box commerce and that as we focus on FRE growth and we manage FRE growth.
Relative to investments and the platform and building out the origination side and all the support that's needed for that.
With the revenue growth that comes with that it's not a straight line, but you know we are very we have strong conviction and a mid change that for your growth rate as we look forward from here.
And I would just echo Mike's comments that there's a range around that and it could be low double digits. It could be mid to high teens and in any one year.
But we manage that baseball and the opportunities to grow the platform and.
In view of when we think the revenue will come.
Thank you. Our next question comes from Patrick Davitt with Autonomous Research. Your line is open.
Hey, good morning, everyone.
And I guess, the fundraising and the 'twenty two and Fundraisings from a different angle I think you said around 49 50 billion of the gross inflow last year was what you consider organic so as you think about all the stuff you listed that debt in the market are expected to be and the market. This year what day.
Do you think is a good range for gross fund raising relative to that number excluding your view of what Athene and authority deal volume could be.
So I'm going to start and then I'm going to turn it I guess to Martin.
I think it's important to understand how we come out. This holistically. So there is athene and authority deal volume.
As you know we are in the retail market every day this year organic growth and just the theme north of 20 billion.
We are among the largest providers of alternative asset services in the retail marketplace.
And we elect to do that though in the form of guaranteed income.
And then in the form of funds, we can at a later date explore the efficiency of that.
And when we start a new fund raise no matter, which funded is we start with a very important anchor.
Relative to <unk>.
Almost anyone else and our marketplace and that anchor is our massive permanent capital vehicles. They are as you know mostly allocated to yield alternatives, which is high grade and in fact yield alternatives, which is how their business runs, but roughly five per cent of their portfolio is allocated to alternate.
<unk>.
Making sure that we deliver adequate alternative assets to our insurance platforms.
A very important part of achieving the overall returns of the insurance company.
And it actually has a second benefit.
It aligns us.
To a much greater degree with our investors.
And that we own in.
In some instances 15 or 20%.
Of a new alternatives fund relative to what a GP commitment might be.
So with that intro I will then turn over to Mark.
And so I'll just I'll just put some a bit more.
Color around that we typically raise away from a year when we were raising our big flagship fund.
And for US, we typically raise somewhere between 15 and $20 billion of third party capital.
And then in addition to that we have organic growth at the insurance platforms plus we have.
Insurance M&A.
And then we have for the deployment of assets you know in our insurance platforms.
And we repositioned their balance sheets, so you know what.
Without you know without any sort of unusually large M&A without any flagship.
And the range of $40 billion to $50 billion, a year give or take.
And then with upside from there.
Driven but driven by the other two components.
Thank you. Our next question comes from Michael Cyprus with Morgan Stanley. Your line is open.
Yeah.
Hey, good morning, Thanks for taking my question and I was just hoping you guys could maybe provide a little bit of and update on some of the direct origination platforms that you've been building out.
Ranging from mid cap by aircraft leasing some of the newer ones how are those progressing and maybe you could just talk about your plans for building those out further from here or whether it's in terms of head count adds other appetite for other asset classes and such things.
Perfect Jim why don't you take that.
Great. Thanks, Mike you know certainly I would say, let's let's talk about the assessment of what we have in place versus growth. So as you highlighted you know mid cap and a PK both platforms that we entered 'twenty.
From strong objectives, and notwithstanding the challenges of March and April strong years, and both a strong ROE midcap and growth of the platform across all its activities same same case with the PK and Merck's, where we put capital to work throughout the year and strong performance and.
Our balance sheet that comes out and in pristine shape both of those entities have a variety of our great liquidity and additional equity debt is will be attaching or attracting over the several months so great growth out of those two.
Mark also highlighted our activities and and that lease space and the core plus and core space over in Europe, and the U S. Two big growth areas for us and.
And I suspect this year, you'll see.
And not only additional capital raise but deployment really first and foremost from our insurance balance sheets as Mark described.
But also across the board from it from institutions as well, which we're seeing a great demand from companies to think about how they think about their real estate, considering what's going on in 'twenty and 'twenty also for raw very very strong pipeline. There you know I would say also you know we've talked a lot about a O P or large cap origination.
Platform, a very healthy start.
Two other for first quarter of 'twenty, one and finally, you know a lot of activities that you saw as a result last year, whether it was the AD and knock transaction, whether it was the hertz securitization and dip whether it was the Abi transaction and the fourth quarter. So this whole a large cap and high grade Alpha, which we are having a very very strong and on.
We see that you know those were really the drivers and as Mark and Martin pointed out you know we find ourselves in the enviable position that debt that you know.
Intellectual capital and coming from the institutional sell side from the Big banks, we are a partner of choice as they decide and you know last year across the firm we brought in over 300 people and many many of those were high quality individuals and we added to our origination platform. So we feel like the opportunity is never.
Been as strong as we sit here and the in the first quarter of 'twenty one.
Thank you. Our next question comes from Jeremy Campbell with Barclays. Your line is open.
Hey, thanks.
Martin just getting a couple of questions from investors. This morning here on the performance fees side of the equation I know you had a little color about funded couple of hundred million still left there, but just wondering if you and I know, it's a little market dependent but wondering if you have any line of sight around when when Apollo might be able to work through those issues and we can start seeing.
And four inch fees show back up and the P&L and a more robust fashion for for private equity.
Yeah, Jeremy we're virtually through the.
Delay and realizations, resulting from the investment and in my comments I referred to a six cent delay.
Delay so the next six sense of what would otherwise be net carried coming out.
As to the Lps and then after that we're and the clear and so any monetization from them will will create Cai.
I think the further benefit is as for nine continues to invest and as Scott mentioned with a with a healthy pipeline in front of us and now being and Carrie.
We have we have a good line of sight into multiple years of fun day realizations.
With fun fun line tacking onto to the back end of that so the clawback is not an issue it's specific to all tons.
Specific to fund out at all and so that's not an issue and sense of realizations and so I think as we look forward, there's a ramp in front of us to get through into what we see is a.
More normalized monetization for it and carry coming and coming through the through the PD business.
Okay.
Thank you. Our next question comes from Mike Carrier with Bank of America. Your line is open.
And.
Good morning, and thanks for taking the question I'm, just kind of your comments and focusing on growth from the firm. Obviously you guys and then if the job from an organic standpoint, and maybe away from insurance and just wanted to get your.
Update on appetite for pursuing M&A.
And either and different strategies or geographies as we've seen some of your peers do.
Okay again, I'll start and then I'll hand, it to Jim and Scott.
And first I. Thank you for your comments and I look forward to and our next Investor day, exploring what I'm about to say and more detail, but to be provocative I believe we're gonna see more change and our industry over the next five years and we have and the past 10, if you step away and just think about what's happened we've had a decade plus of.
Repression.
Where investors who were relying on a certain set rate of guaranteed return or fixed income return had been unable to achieve that and they've been pushed further and further out on the risk spectrum to try and achieve any kind of normal return to.
To date that return has been met because we've been and a very interesting market at the same time, what we've seen is we've seen two other perhaps three other really big trends.
And one is indexation.
The more and more a market gets indexed.
The more things fall out of and index and create interesting opportunity second is correlation.
And the third is volatility as we're seeing in spades and this market.
All three I believe present interesting opportunities for us to invest around.
For us to augment our franchise in ways, perhaps unexpected.
And with that I'll see if Scott wants to add anything.
Yeah look.
And I think as we continue to grow.
And to geographies into products into sectors.
You know, we're always looking at how can we build it ourselves can we bolt on small teams or do we have to.
You know take a larger steps and make more sizable acquisitions and so all of that's completely off the table and.
As we just pursue these different options I think you'll you'll you'll see more of a mix of all of that going forward.
Thank you. Our next question comes from Devin Ryan with JMP Securities. Your line is open.
Okay, great. Good morning, and just want to talk a little bit more about the deployment back drop and and maybe coming at it from just from the comments you just made mark I mean.
The perspective here is that you and a credit backdrop has recovered dramatically risk assets are at highs or close to it and.
And I know Apollo is always thinking about the upturn and opportunities but also.
The downside risks and so you know in a backdrop, where it doesn't feel like there's been a lot of risk priced and broadly.
How is that informing you know kind of the the views on deployment and and I guess, where some of the things you are looking at better and maybe different around deploying capital into a into this environment.
Sure why don't I, why don't I hand that to Jim to start.
Sure I mean, I I really think the answer to that is looking back and and and our performance and 'twenty. If we had sat here a year ago and we described for you the litany of transactions from AD and a two.
Expedia to Albertsons to Abi to both hedged transactions you would've said those were going to come out of the auspices of the banks that was there and that was their machine and that's their opportunity and so we have found ourselves in the enviable position of having expertise on sourcing struck.
<unk>, taking down and potentially syndicating those transactions. So you know the theme that we've talked about for several years the evolution of intellectual capital from the street to the buy side the search for yield and the regulatory environment, our footprint all the themes that mark and Joshua and hydro.
And here you know.
And we just see those.
And celebrating.
And when we think about our pipeline for those transactions, which we think there's really just a handful of firms and the world that can do the the the execution and I just mentioned, that's what excites us about our ability to.
Grow and they also interest as its the feedback loop to focusing more and more on that front and as Mark described so I think the evolution of the business is constantly changing.
Regardless of what happens and the regulatory front, we think that our robust model from sourcing and and execution is really unmatched and we expect that to continue and not only in the U S. But to continue around the globe and and in Europe and in Asia.
And in our and our view, that's a real highlight of our growth opportunity.
Yeah.
Thank you. Our next question comes from Chris Harris with Wells Fargo. Your line is open.
Great. Thanks, guys.
So it's been a lot of focus obviously on existing Lps and their willingness to reallocate to Apollo.
Now that the review is over can you talk a bit about the prospects for and expansion of Apollo L. P base.
Sure and this is Jim and I, you know I think.
And I can't emphasize enough is as Mark said you know we are a massive platform of 425 billion, we have thousands of institutional investors and certainly we see what's going on in the evolution of savings with regard to other wire houses, our A's and several others and I think you should expect to see you.
Expand that types of fund raising channels and the appropriate yield channels over the coming a year and years ahead. We have brought on some folks do that we have augmented the team and part of our.
Our budget and 'twenty, one and 'twenty two will be to really accelerate that.
You know I do think that when we think about our our platform and the conversation that's going on about distribution channels. We think we're particularly well suited to do so again, if you look at the I know there was a question earlier about our pipeline of products. We currently have about 11 products and the market for slash five.
And those are really evergreen and the other six seven are episodic ones that Scott mentioned and certainly there's a there's a scale ability to a variety of things whether it's our cord series, whether it's our T. R. F series, whether what we have going on in and core and core plus so we feel that we have a great.
Portfolio to apply to that diversification and again I I think we have a I a great list of other institutional piece, but certainly there's ways for us to expand that and continued basis as well.
Yeah.
Thank you our next question comes from.
Gerry O'hara with Jefferies. Your line is open.
Great. Thanks, perhaps one on the insurance and insurance outlook I mean clearly.
More entrance more competition. So just kind of curious as to kind of any context or commentary you might be able to and as it relates to.
Just more competition and that market and also on a related basis, how we should think about the repositioning of last year's acquisitions.
For example did the market environment and allow for an acceleration of that are you and maybe more than 50% through it or just some kind of context as it relates to those portfolios and thank you.
Okay. It's mark I'll start with your second question and work backwards, which is to say I'm not going to steal athene and Thunder there'll be announcing results on the 17th.
But and the commentary they've made today and I know they are very pleased with how things are going and some other transactions that both Jim and Josh alluded to were anchored by our insurance company balance sheets, both in the U S and in Europe.
Competition in any market is inevitable people have seen now what we have built over the last 11 or 12 years and.
And I assure you that we have paid substantial tuition.
Buying something.
Is not the same as <unk>.
Integrating your business with an insurance company.
Every morning, and Apollo there are 150 people, who wake up and do nothing other than insurance.
The plumbing, the piping and the understanding of how assets get onboard and onto an insurance company balance sheet is.
And is different and making investments and insurance, it's different and managing money for insurance companies, it's a fundamentally different skill set.
And to delve in perhaps more than you wanted to what we have succeeded in doing and the insurance business is to create a virtuous circle.
Insurance is a capital intensive business every time, you grow and insurance you have to raise capital to support that growth from a regulatory point of view.
What we have done is we have gotten to be so large and so profitable.
And that we generate.
<unk> amounts of internal capital.
So that we are able to continue to grow.
Without necessarily raising new capital if we want to grow really fast, yes, we augment the balance sheet by again integrating limited partners are integrating specific funds into our insurance company acquisitions.
And it all starts with having a profitable insurance business. If you look at our public entity Athene and Athene has.
Grown north of 15% sits and since inception in terms of earnings.
Any growth any asset management has to be good for the underlying clients.
Whether that client is a limited partner.
And whether that client is a retail and investor or whether that client is an insurance company.
This is all about balance and I'll come back to where Jim and it and where I started.
We are not limited in our growth.
By the amount of money that can be raised.
With our <unk> that's.
That's not true for every fund and every product, but across our platform. If we want to raise more money.
We can be more aggressive and the reinsurance market, we can be more aggressive and the retail market, we can be more aggressive and they F. A b.
And market and so on and so on and so on.
What we need to do is we need to have growth off the front and consistent with growth and the backend because for an insurance company, particularly and the businesses that we're in it's about earning adequate spread on a risk adjusted basis for our institutional and retail clients, it's about earning adequate return for the risk they undertake that.
A limiter of our growth is.
And is not our ability to raise and AUM from any source.
Is the ability to scale the front end of our business, which should be our primary focus and if we're good at that.
And we'll take care of itself.
Hopefully that answers your question.
Okay.
Thank you that's all.
All the time, we have for questions today I'd like to turn the call back to Mr. Peter <unk> for closing remarks.
Thanks, again for joining us today, and we look forward to speaking with all of you again next quarter.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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