Q2 2021 Apollo Global Management Inc Earnings Call
Good morning, and welcome to Apollo Global Management second quarter 2021 earnings Conference call. During today's call discussion all callers will be placed and listen only mode and following management's prepared remarks. The conference call will be opened for questions. This conference call is being recorded.
This call May include forward looking statements and projections, which do not guarantee of future events or prefer performance. Please refer to Apollo. Most recent S. E SEC filings for risk factors related to these statements Apollo will be discussing certain non-GAAP measures on this call, which management believe.
And our 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 and nothing on this call constitute an offer to sell or a solicitation of an offer to purchase and interest and any Apollo.
And I would now like to turn the call over to Peter Mintzberg head of Investor Relations.
Yes.
Thanks, operator, welcome to our second quarter 2021earnings call. Joining me. This morning are Marc Rowan and see oil and confound the gyms elder co President and Martin Kelly CFO and of course, yellow I'll like to turn it over to mark to kick off our comments for today.
Thanks, Peter and good.
Tal.
Pleasure to be here.
Q2, 'twenty, 1 was a particularly strong quarter for Apollo.
Business as you saw from our results is performing well across all metrics.
The record quarterly FRE of 68 cents a share of the.
Hi is D E. Since 2013 of them dollars 14 per share a strong performance across the PE portfolio of 9.5% credit up 2.6%.
The numbers speak for themselves and Jim and Martin and I don't want to steal their Thunder. They will review the specifics of the quarter with you.
In terms of other corporate housekeeping, our merger timing with Athene is on track, we expect that to close in January of 'twenty 2.
During the quarter, we continue to make progress across the communicated the governance and cultural enhancements and we welcome David Simon <unk> to our board and.
As you know we are on track to simplify our voting structure.
Connection with the merger of that way again will happen in January of 'twenty 2.
For those who didn't see it and we recently published our 12th edition of our annual ESG report detailing how we take a holistic approach across all of the communities we operate in and.
And how important this is to our franchise and.
We also announced during the quarter.
Our.
Commitment to all finance and important initiative designed to diversify the alternative industry and expand the opportunity to historically black colleges and universities.
Additionally, during the quarter the key person clauses and our private equity business have been satisfactorily approved and addressed.
Having gotten through the housekeeping.
Let me do as I often do on these calls take a step back and look at the Big picture.
The demand for our and product excess return remains incredibly strong.
Drivers of this are persistently low rates and <unk>.
Growing retirement market, both for retail and institutional and.
Importantly, the disappearance of the spread.
Almost any form and public markets.
And the democratization of access to alternative credit and equity across other channels than historically have been available.
We have positioned the firm.
And the way we go to market is our ability to generate excess return alpha at all points across the risk reward spectrum.
We view this as our competitive advantage we view this as our rationale we are in the alpha generation business, rather than the collection of AUM for the purpose of collecting and AUM.
Across our opportunistic franchise and our hybrid franchise, we approached us and a contrarian value oriented mentality with a proven track record over a variety of market cycles over 31 years and.
And the results as you've seen previously are spectacular.
In yield and the largest of our segments.
This is a fixed income replacement business. This is not and opportunistic credit business. Our goal in our yield segment is to produce 150 to 200 basis points of excess return.
Over the equivalent of CUSIP.
Across the capital structure, we want to get paid and our yield business for illiquidity and complexity and origination not for taking additional credit risk or assuming other risks that we do not intent.
Again stepping back.
So we've said previously in the broadest terms over the next 5 years I expect our yield business to double.
And I expect our opportunistic and our hybrid business to be 50% larger.
I believe this will take place without any significant acquisitions in our asset management segment, although as you will see and Martin will address we have ample capital to accelerate our growth if we find interesting opportunities.
Last year, we added 300 people to our 1300 person base.
This year, we will add between 304 hundred people.
And I am confident that we will end the year positioned to support and accelerate growth into 2020.2.
I don't want to take too much away from strategy, but I will step back and now talk a little bit about strategy and.
As you know.
We are fortunate to be in a growth business almost every day of the business gets better the.
The trends and the business are overwhelmingly favorable.
And we look forward to providing you an in depth perspective on our business and our go forward strategy.
And in Investor Day, which we will announce which we expect to take place and the month of October.
In advance of Investor Day, I want to touch on a couple of building blocks, which I've mentioned previously.
In order for us to double the yield business and increase the opportunistic and hybrid business by 50%.
We need to do a couple of things first.
First and foremost is to expand our capacity to generate investments origination.
Second is to strengthen our distribution capabilities, particularly in our hybrid and opportunistic segments.
And third and a relatively new area for us to touch on but 1 that consumes a lot of our time on.
And mind share is to prepare the company for the innovation and change that is taking place across the financial services landscape.
Make no mistake the innovations we are seeing and fintech.
Which have taken place of cross trading markets and other types of markets are coming to alternative finance.
We view this as a significant opportunity rather than a threat as I believe we are well prepared for it and I believe our industry will given that moves relatively quickly we'll be well positioned to take advantage of this let.
Let me start by a review of origination.
Lot of what I read, particularly and the analyst commentary and even ourselves we talk about the permanent nature of our capital.
So called perpetual capital.
I think of origination as perpetual asset origination we want each year not to have to start from zero, we want to be able to count on recurring asset origination opportunities and.
Cros are yield business because of the demand for yield product is going up and of 100% of what we originate has a home.
This quarter, we made significant progress in the origination we announced a significant relationship with victory Park, which will give us access on the senior basis to the growth and technology lending space and we announced the acquisition of foundation mortgage of U K based mortgage lender you should expect to see.
As of May.
Additional announcements with respect to our origination franchises over the remainder of the quarter.
We are and the industry.
The short origination.
The capacity to originate the expansion of our capacity to originate is key to our growth of particularly across our yield business.
And as it relates to these alternative distribution channels again significant progress was made during the quarter. We expect to have a fully ramped up retail distribution business in place for the launch of fund 10, as well as certain credit products towards the end of this year.
And we expect retail to be a significant part of our go forward strategy.
Which I know Jim will spend some time on it in his remarks.
Let me hit on this other topic of.
Of innovation and change coming to our landscape.
Apollo 1 of our key strengths is and financial services not just in the growth of our retirement services businesses, but in banking and lending and origination.
Our business as I said is evolving.
And we like our peers are ourselves a large financial institution.
Changes are coming to the way products are distributed changes our way of coming to the way we are.
Securitized and the way markets function.
And changes are coming to the way we originate assets.
All of these things as I said, we welcome.
I believe these plays true toward our strength rather than something that we should be concerned about during the quarter, We announced 2 significant ventures, 1 with motive, which is of strategic investment to help position us at the forefront of Fintech and technological innovation.
And the second with figure, which is the strategic collaboration to implement blockchain across the investment lifecycle, particularly focused on securitization.
And these are not pie in the Sky. These are real and tangible things that will have immediate cost benefits data collection benefits and other benefits to our business.
Away from the 3 things I mentioned.
A lot of interesting opportunities during the quarter.
You will hear and I will steal a little bit of Athene Thunder.
There is a robust stream of growth and retirement services across the platform. This year, we expect to originate at Athene North of 30 billion and on an organic basis.
And if trends continue could be as much as 35 billion.
Further we made a significant minority investment joining athene and.
And taking a stake and challenger challenge or it looks an awful lot like Apollo and Athene, Buddy and a fast growing and really interesting Australian market. They are of both an originator of assets as well as the largest provider of annuity product.
In the Australian market.
Before I turn it to Jim and Martin I, just wanted to make it clear there is just incredible momentum across the platform.
This is internal and this is external we are laying the groundwork for first and exciting investor day, but also looking very much forward to completing the act with the merger with Athene beginning of 'twenty, 2 and a very strong 22.
We are seeing the tangible benefits of the cultural initiatives. We've put in place. Our work force is engaged excited and wants to be back and the office.
With that it's my pleasure to turn the call over to my partner Jim's elder.
Thanks, Mark and thank you all for joining us this morning.
And I want a more echo <unk> sentiment, we continue to deliver strong results across all key metrics and we expect the momentum to continue and build as we make tangible progress and our growth focused agenda.
The strategic growth is at the forefront of of everything we do but we are still maintaining a strong focus on execution as our quarterly results demonstrate.
As Mark highlighted overall investment performance remains strong with the PE portfolio up 9.5% and the corner and the credit portfolios up 2.6%.
And private equity fund and the Orange is leading the way with exceptional performance driving the gross IRR of 49% and 28% net where the growth gross myc of 1.5 times.
And credit spreads tight we've been moving up and credit quality and finding returns true superior asset selection and origination.
We've seen particularly strong performance out of our core for with the appreciation of 20% through the first half of the year, including 8% and the second quarter.
Elsewhere within the opportunistic side of the business our inaugural hybrid value fund is delivering strong performance, where the gross IRR of 29% and 23 net.
Moving toward deployment results and our ability to fire and attractive investment opportunities even during periods of elevated valuations has proven both critical and fruitful.
Total deployment across the platform of 28 billion was a quarterly record.
And our private equity business, our drawdown funds invested $5 billion and have additional commitments to invest a further 6 billion as of quarter and including fine from the R&D.
The investments in the Yahoo, and employ bridge.
Yesterday, our private equity business announced a 7.5 billion carve out of Lumens ILEC business across 20 states.
Where the strategy to bring faster more reliable internet service to underserved markets and accelerate the upgrades to fiber connectivity.
This draws on our telecom and infrastructure expertise and we have a management team in place, which helped build horizons and successful buyouts network.
Through this investment and we're excited to help bridge, the digital divide and America, where the transaction that the aligns well with our strategy.
And we're seeing value oriented investments with aspects of complexity that represent transformational opportunities as a corporate carve out.
Including moving from the Orange is narrow and 72% committed or invested.
Given the current deployment outlook and the robustness and returns we expect to be fund raising for fund 10, and the first half of next year.
Our vision for the hybrid value platform is materializing as planned with the very active pipeline of transactions as companies are increasingly increasingly seeking flexible bespoke capital solutions.
Hybrid value fund 1 is nearly fully deployed and we expect to begin deploying from farm to and the very near term. We also signed our first G. P solutions transaction this quarter and the conjunction with our hybrid value franchise.
And our credit franchise deployment and origination was also very strong at 19 billion during the quarter, our highest since the fourth quarter of 19.
We have remained defensively position this year and comparison, where we were a year ago and continue to focus on idiosyncratic opportunities and individual names.
Mid cap.
L O's and our commercial real estate debt businesses, all heads from origination quarters, contributing 10 billion and total credit deployment.
Additionally, our aviation business completed a 1 billion dollar aircrafts of related origination volume during the quarter, our most active quarter and years.
This deal volume coincide with the final close of our inaugural aviation and brought down from the navigator, which showcases our ability to leverage our industry expertise into our retail dedicated product as.
As we look forward our origination pipeline remains strong across mid cap Europe and the aviation to name a few areas.
On the monetization front, we realized very strong returns for our fund investors during the quarter. We returned 9 billion of capital up significantly from the prior year period the.
The private equity flywheel is very much and motion we.
Enter the robust realization cycle encompassing 2 flagship funds at the same time, we expect sizable monetization activities and fund 8 and married to be balanced with the continued and help the deployment activity.
Turning to growth and assets under management recalls and our business generates inflows and a variety of ways, we have our institutional fundraising channel.
Our emerging growth well wealth management solutions platform.
And the consistent and strong growing growth coming from through all of our retirement services.
And it's namely of theme as well of inorganic growth potential across the platform.
All of this mix can vary year to year, depending on opportunity as well as the timing of certain products and the market the breadth and depth of our platform ensures attractive growth across time.
As such inflows from the second quarter were 12 billion, bringing total inflows for the first half of the year to 26 billion.
For the full year, we expect to generate inflows of approximately 50 billion driven by 30 billion or more of inflows from Athene as Mark mentioned and approximately 20 billion of inflows from our third party institutional and wealth management businesses at the high end of our previously communicated $15 billion to $20 billion targeted range.
Not surprisingly organic growth trends at Athene remain very favorable and appear to be accelerating with particular strength and year to date funding agreement backed note issuance and pension risk transfer activity, where they just announced the 5 billion transaction yesterday.
And our third party institutional business, we've had strong engagement with foreign investors on both existing and new products and for example, we are making strong tangible progress on our capital raise of 1 billion plus inaugural impact for them.
We also plan to be and the market for iron ore inaugural of core plus fund a new multi asset class opportunistic credit product. This fall.
As we discussed earlier this year, we see tremendous growth opportunity potential and the high net worth and mass affluent markets given its increasing sophistication and are investing heavily to capitalize on this long term opportunity through our dedicated global wealth management solutions platform.
We are fortunate and the opportunity with the leading brand name.
And investment track record and establishing targeted distribution and tailoring products and of the individual investors globally can access our strategies across the risk reward spectrum.
We are also focusing of her on how education technology and client service will shape our approach.
In addition to hiring a head of U S distribution, we built out of the team to cover the U S private banks and wire houses, including wholesalers with coverage across the country as well as national account professionals.
We have plans to continue to add professionals in the U S and internationally as we build out of our global footprint the.
The independent channel is also a priority for us as we look to expand our existing coverage. We're focused on deepening our partnership across wealth management channels globally through the distribution of our qualified purchasers strategies, including but not limited to our large scale direct origination hybrid value and P.
But additionally, we're also contemplating several of credit strategies, including of several semi liquid private credit opportunity.
Historically, approximately 94% of of pulse third party inflows have from kind of come from the institutional channel, but we're actively working to change that mix and 3 to 5 years. We believe the contribution from the wealth management channel will be a material part of our third party inflows given the vast opportunity and the 54.
5 trillion plus global retail market.
As a reminder, athene already access as part of the retail market buyer of his retirement services product offering we believe the alignment we are creating with our upcoming merger will help expand their retail network as well.
You likely noticed that we had a very strong transaction and advisory fees and the second quarter, including $55 million of fees from the credit business. These results reflect our ability to source and distribute large scale credit as we have made growing our high grade of alpha origination pipeline our strategic priority.
1 of the largest transactions this quarter was for Hertz, which falls under successful transactions over the past year, including AD knock and a b and Bev.
Alongside our efforts and large cap lending we have been very focused on developing our capital solutions platform.
This quarter, we made several key hires to help scale, our centralized origination structuring and distribution platform and we are confident that we will continue to see significant acceleration of this market opportunity and feel comfortable that our business will grow.
As Mark touched upon and we announced several strategic investments this quarter, which we believe will bolster our front and origination capabilities longer term continuing.
Continuing with 2 of them continuing to invest and grow and these front end origination platforms is of key tenant of our growth strategy. So you should expect us to announce additional investments to further broaden the platform.
Our recently announced partnership with victory Park.
Give us access to proprietary origination and the e-commerce financing markets and.
Additionally, our fees.
The acquisition of foundation home loans will complement of our expanding asset sourcing and the residential mortgage space and the U K.
We expect the businesses will be multiple both of these will be multiple billions of asset originators for athene and balance sheet and our institutional investors over the several coming coming several years.
As part of our broader innovation agenda, we announced 2 key investments this quarter motive partners and figure.
We are embracing technology is another way to expand our origination and distribution capabilities and to help put us at the forefront of advancement and disruption across financial services. Additionally, we believe that the broad adoption of blockchain to materially reduce back office operating expenses and presents additional.
<unk> revenue synergy upside.
In conclusion, we are making substantial investments across our credit and opportunistic businesses as well as of our enterprise solutions platform to take advantage of the opportunity set and various growth markets.
You have shown meaningful progress on expanding our capabilities and footprint and the first half of the year and you should expect to see us continue to make additional announcements in the coming months.
With that I'll turn it over to my partner Martin.
Thanks, Jim and the second quarter as you've heard Apollo recorded very strong results across all key financial and operating metrics.
We generated FRE of <unk> 68 per share on a pre tax basis.
On the dollar basis, FRE increased 5% quarter over quarter, and 16% year over year, driven by growth and management fees, and an uptick and transaction and advisory fees.
The related earnings exceeded $300 million for the first time illustrating our continued progress and growing just finally valuable earnings stream.
Management fees grew 3% sequentially and 15% over the prior year quarter, driven by the growth of our retirement services clients as well as strong investing activity across the platform broadly.
Transaction and advisory fees were $83 million and the quarter up $28 million over the prior quarter and totaled $139 million over the first half of the year.
The strong results reflect the build out of our large cap lending business, including a significant financing transaction with Hutch and co invest capital for the Michaels transaction within phone line.
Compensation expense was up 4% over the prior quarter largely driven by the the strategic hiring activity Mark discussed earlier.
These additional resources are critical to support the abundant growth opportunities in front of us as well as to position the platform for increased efficiency and the future.
Looking forward, we expect compensation expenses will continue to trend higher reflecting this hiring investment.
However, we remain confident that this growth this cost growth will be managed in line with our long term mid teens or better FRE growth expectations.
Non compensation costs increased $18 million sequentially due to higher recruitment costs and occupancy expenses as we expand our global real estate footprint.
To adequately of culminate outgrowing the team.
Turning to day for the for the second quarter, we generated after tax distributable earnings of $1.14 per share supported both by our strong and consistent pretax FRE and net incentive earnings of 58 per share.
Behind the strength of private equity realization activity during the quarter we.
We recognized $222 million of net carry.
Notable transactions included the life point of health.
The double Eagle Energy, Apollo Education group, and Onemain financial among others.
From the quarters D E, we announced the dividend of <unk> 50 per share.
We retained excess cash earnings to invest and growing the new platforms that Marc and Jim both described the.
The aggregate investment by Apollo and affiliates and these platforms across the second and third quarters amounts to approximately $1 billion.
As we evaluate additional investment opportunities with our upcoming change and dividend policy post merger.
We're on a glide path to this new approach and expect a similar 50 cent per share dividend in the third quarter before the new 40 cents per share dividend and takes effect after the merger closes.
As Jim mentioned, we have entered a robust realization cycle that we believe will provide sustained and meaningfully higher realizations.
And the near term and as evidence of this and we expect to report 2021 full year after tax day of over $4 per share.
Based on activity to date and the third quarter, we have already realized pretax net carry of approximately <unk> 50 per share.
When you consider of holidays ramping incentive earnings paired with strong and growing FRE and further combined with the attractive growth and earnings profile at Athene the.
Earnings growth and capital generation characteristics are very powerful.
Turning to AUM, we ended the second quarter at $472 billion up 2% quarter over quarter and 14% year over year.
Driven by third party fund raising organic growth from Athene as well as the portfolio appreciation and partly offset by strong P E realization activity.
Fee generating AUM of $354 billion was up 2% quarter over quarter and 7% year over year.
Dry powder for investments across our fund complex totaled $48 billion at the end of the quarter of which $25 billion has the potential to drive management fees once invested.
S&P recently published the annual report on Apollo and upgraded our credit rating outlook to positive.
Net economic balance sheet after debt and preferred stock was approximately $11 per share as of June 30, increasing nearly $3 per share quarter over quarter.
To echo both Marc and Jim We are pleased with the impressive results this quarter and we expect the strong business momentum demonstrated in the first half of the year to continue.
Looking forward, we are focused on executing our growth strategy, including via our announced the merger with ethane.
In order to lay out of our growth strategy and more detail, especially as it pertains to the upcoming merger we.
We will be hosting an investor day in October and we hope many of you will be able to reconnect with us in person for this important event.
We expect to have a very targeted agenda centered on several key focus points, including the growth strategy of our combined business the financial construction and the earnings streams of the combined company as well as the earnings profile and capital allocation expectations.
With that I'll turn the call back to Peter.
Thank you Martin and that concludes our remarks for the day operator, Please open the line for questions.
And as a reminder, task of question you will need to press star 1 on your telephone to withdraw your question first of the bounty. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Alex Bluestein from Goldman Sachs. Your line is now open.
Great. Good morning, everybody. Thanks for taking the question.
So in the prepared remarks, I heard lots of growth initiatives really across a pretty wide spectrum of initiatives, which is of great to hear on top of Athene.
I guess, taking a step back can you help us maybe with the framework and sort of the growth algorithm from management fees outside of the insurance partnerships call. It over the next 2 years, especially as realizations from prior of private equity and did you start to accelerate.
Maybe it's Marc maybe I'll.
The framework for it and then turn it to Martin and to Jim to fill in so broadly what we've said and again, we will be more specific and Investor day, we expect our yield business to double and.
And we expect our opportunistic and hybrid business to be 50% larger over the next 5 years.
That is of a doubling of the business doubling of FRE doubling of of AUM and that is without <unk>.
Significant acquisitions or any real acquisitions from the capital that we have accumulated and the capital that we will accumulate.
The combined entity.
I think that provides at least some backdrop and framework.
And for how we're gonna grow I'll dig into a little bit on the without Athene question.
And this will carryover to remarks.
And I expect from other questions.
100% of any asset that we originate in the yield business has a heart.
In fact of 150% of any asset that we originate and the yield business has the hub.
We as an asset manager.
And the choice and that choices do we derive a pure asset management fee from that.
Or do we derive a pure asset management fee plus spread related earnings.
What we have.
Done and what you will and the merger with Athene reiterate is that we believe given the asset scarcity and the limited ARNN growth in the yield business rather than liability of accumulation.
And we should earn as much money as possible.
From assets that we originate.
And that does not mean at the expense of third party business, because we can't take concentrated positions onto a retirement services balance sheet, but and so what we have done is we have built and expanding ecosystem.
Of similarly, situated companies of.
All of whom face the same challenge.
And that Athene and other space, which is the absence of spread and public markets.
So long as we increase the origination capacity of 100% of those assets have a home.
They can go onto Athene and authorities balance sheet. They can go to third parties.
I can go as we've already suggested into our mix.
And as opposed to looking at it as 1 or the other so Jim Martin.
And after that and I think what you know what we've a great example that Alex is the the high grade Alpha where those transactions were very were critical and athene or for or other insurance balance sheets would lead buyer, but a combination of other third parties augmented that are that demand side. So they go hand.
And having the growth goes hand in hand.
And the creation and the development of these origination goes hand in hand.
And certainly we look at them as multiyear growth. The critical aspect is the origination of angle of.
The the balance sheets of the insurance companies as well as third party institutions grow and certainly as you grow grow of wealth management that retail democratization will be at the trough as well.
Maybe I'll just I'll close out because I think the.
The 1 point that I do want to emphasize.
And the go to market strategy asset origination is key.
But it also is followed by alignment there is nothing more reassuring to a third party client then the affiliated balance sheet owns the same security and size. The same time same price.
That is in fact, a unique selling proposition and why in particular and things like high grade Alpha and we expect other areas. We will see significant growth in third party business side by side with the thing.
Thank you. Our next question comes from the line of Glenn Schorr from Evercore ISI. Your line is now open.
Hi, Thanks.
Maybe we could continue the conversation on the origination side. So I hear you loud and clear the 100% of the assets you originate out of the home.
So my questions are and I know, that's maybe we'll talk generically because each 1 is probably different but when you look at something like victory Park of the UK mortgage lender.
What percentage of their production and are you getting who controls the underwriting is it exclusive and does the Apollo take on any risk in these transactions and I know.
And the assets of going into the funds, but I know, that's a lot, but and I'm going to learn more things. Okay. So the first Glenn. Thank you and these are not your droid either.
Just to show you the we actually be able to publish but let's come back to what origination is origination.
Origination gives us control of documentation.
It gives us control of diligence it gives us control of structure.
And it gives us improved economics.
The 1 thing it does not give us is liquidity.
We think that is the right trade off for a fixed income replacement business, which is the general characteristics of our yield business.
There is no 1 size fits all with respect to the platform.
But.
The reason to do this is to control of the credit process and the diligence diligence process and not expose yourself to undue risks.
In some of the platforms and I want to stop there because there are donlin PK aviation mid cap net lease and a number of others and some of the platform as we derive.
And as Apollo, whereas the broader Apollo and Athene and third party management ecosystem of 100% of the production.
And others, we also securitize and participate and capital markets at least for a portion.
This is all about optimization of the specific risk reward and platforms, we own and platforms, we partner with which is another way for us to acquire of platform now I'll, let Jim address what we do with victory Park. So more of what Mark just described is what we have with the names you mentioned, including foundation, where we'll take all of those assets put them onto <unk>.
Our insurance or other balance sheets, and then the ongoing flow will exclusively come to us because we in essence control and all of that platform victory Park is different victory Park. They have really spent a number of years really fine tuning their financing and funding to the growing expansion of of <unk>.
The online financial our retail distribution and in that case, we are of partner with that firm, where we provide a senior facility and they are the junior debt and equity underneath us.
Some of alignment between the warrants of otherwise, but again, we are aligning to their flow because as the ecosystem of Bonanza and funding has evolved and the last 10 years.
There are certain firms and are really connected with the consumer and other ways and traditional bank lending and so we want to be the financing partner to those firms and then the whole situations, where we don't control all the aspects of it Mark said the ultimate control. We have is to open or tightening of the flow of product over a quarterly basis.
So we what we've actually found is the flexibility to go from a 100% control to align partner all around the U S and enrollment globe. That's really allows us to create that incremental spread on that on that fixed income alternatives that mark talked about.
And more broadly Glenn just to come back to this again, we we as an industry and Austin, particularly of spent a lot of time talking about perpetual capital, we really are interested and perpetual asset origination we.
We need to start each year understanding that we have the capacity to generate significant amounts.
The yield the assets appropriate for the client base internal and third party that we have elected to serve.
Thank you. Our next question comes from the line of Michael Klein Free from Morgan Stanley. Your line is now open.
Hey, good morning, Thanks for taking the question Mark I guess with nearly a year of half a year under your belt running the firm can you just talk about how you are improving the governance structure of the firm how the board structure is evolving how do you see the culture of the firm are evolving here and can you also touch upon the key person point that you mentioned at the beginning of your remarks that was.
Out of sight and address thank you.
Sure Let me, let me work backwards the.
The key person again, I think as Scott suggested in his remarks last quarter.
And the P franchises of franchise that has been well institutionalized.
The team that oversees our private equity business of Matt.
Matt Nord and David Sambar have really been the primary contributors for the past 3 funds the results and the business are nothing short of spectacular as you heard this morning, and then the <unk>.
<unk> just to step back that a $25 billion fund is up high forty's growth and high Twenty's net.
And such a strong MLC is itself astounding.
Sounds like venture numbers.
I do not believe that we really ever thought that this was an issue and it simply reflects the evolution and maturation of the franchise, where those people who are most important to the franchise are now I'll say came out of and I really mean and key person because that's increasingly where we're going and.
And those who are less important to the franchise.
Or are moving on and that's and Josh as case are no longer keep people.
So not an issue.
Culture is a big area of focus so and I.
Divided the.
Tasks with my 2 partners, Scott and Jim.
And what you would expect the CEO I get to choose first so I'd like to do strategy culture.
Communication and dealing with problems.
And I left most of everything else to the 2 of them and including the day to day running of the business, but culture is key.
Internally.
All of those culture has really always worked and I.
And I gave the statistics, but and sometimes it's helpful just to reframe it.
We started 2000 Twenty's and 8500 person firm, we added 300 people remotely during 2020 and turnover went down.
We will add between 304 hundred people and turnover is trending now.
What we have built internally is the most collegial and the most integrated.
The most entrepreneurial model.
And I believe all of those things, we need to do when we need to double down on.
Having said that we also need to recognize that the world is changing and markets are changing and increasingly our business by population is.
And is comprised of F. Our regeneration businesses around yield.
That requires a different set of compensation and tools, a different culture and a different approach and we are evolving rather than radically changing the momentum in this place is.
Palpable.
And it feels great.
Our next I'll, just I want to not leave it on said and governance is also of transition as I. Previously noted on calls our entire industry is going through an evolution of the evolution started well.
We all pretty much started as private equity only.
<unk> limited partnerships those firms that were successful and those activities and institutionalize their business got trusted with more capital and those that also did well with more capital got to broaden the strategies and once you got to that of number of the firms sufficiently institutionalized more successful and going public.
That's the generation of founders will turnover I know some don't think of that will happen, but and inevitably will happen.
We are the first of the large firms really to go through that wholesale transition not just on the management level, but at the governance level on the shareholding level.
I as I said somewhat jokingly I believe others will do it unless noisily than we have.
But it does feel good to be on the other side of that the business functions normally we function with the board as any public company with function with the board.
And there's just no impediment to what we're doing we will lay out and Investor day alongside of the topics that Martin discussed our approach to governance and also approach to compensation and some of these cultural initiatives going forward.
But it does feel really good.
Thank you. Our next question comes from the line of Bill Katz from Citigroup. Your line is now open.
Okay. Thanks, very much for taking the question and good morning, everybody you guys were going pretty quick in terms of what you're doing on the retail side. I was wondering if you just sort of maybe recap where we are today and then as you look into 2020.2 it sounds like maybe where like the the early opportunities might sit in terms of capital raising thank you.
Sure Bill it's Jim.
Just to level set if you look over the last number of years.
Approximately 95% of our fund raising had been through our traditional and.
The institutional channels.
And we had raised with the you know.
Some of which with our higher net worth that the private banks and the large wire houses some of our flagship project and products, whether it was EPS for fund of our PE funds.
Those had been a traditional distribution channel for us.
Starting actually in the middle of last year, we embarked on the strategy to dramatically increase our global wealth distribution channel and we really aligned our senior leadership to allow the next generation to come up and run our institutional business and proven leadership under Stephanie to really focus on the globe.
The wealth channel.
So we set it up about a year ago part of the numbers that mark and and and Martin went through about the hiring this year, we've hired a tremendous amount of folks and so we believe the through the course of this year. We will have a team that can really feel the breadth of distribution across geography.
Fees and products.
Your next question a lot of the products. We have is just really opening the spigot to what we have today, but it's also creating new products that fit the of credited our marketplace. Obviously, we have a.
A non traded BDC that we expect to be out in the market and the and the latter quarters of this year and to really ramp up in 'twenty, 2 and beyond but there are a variety of other products and the lab that.
We will focus really on the on the yield and the hybrid products for the mass retail our agenda is not only in the U S, but in Europe and Asia. So that's the that's the free part plan. We all have seen how large the marketplaces. We believe it's a you know whether it was.
And the numbers were 40 trillion or 55 trillion, it's and a massive total addressable market. We believe our brand our track record of our product innovation will be able to conquer our fair share and go on from there, but it's an exciting growth of tool for the firm.
And we expect to have our participation.
Thank you. Our next question comes from the line of Patrick the meat from on prominent research. Your line is now open.
Hey, good morning, everyone.
You mentioned the challenger stake could you help us.
The stand a bit better of how this could flow through earnings and value for Apollo shareholders and as the end game here of having another insurance platform like athene or a thorough but in Australia.
So it's mark I think it will depend we'll see how it develops but just to recap we over a roughly 12 year period, we're a minority shareholder of Athene and only earlier this year did we decide to bring in 100%.
We also have a significant minority shareholding and a thorough.
And so we look around the world and there are a bunch of really interesting markets and this is probably more than you want but regulatory change and the absence of spread and public markets is creating opportunities in Japan, and Taiwan, and Hong Kong and a number of other markets. Some of those markets are best.
Access through reinsurance or through other types of entry strategies, but a market like Australia is best accessing our opinion through a stake holding in and established come.
The company with its own strategy of its own regulatory and asset origination capability and quite frankly of mentality that is very similar to ours. So I think it's early days.
But I'll come back to the growth in the retirement services business is not about liabilities. It is.
It's all about assets.
Thank you. Our next question comes from the line of Robert Lee from say, the that where you and your line is now.
Great. Good morning, everyone. Thanks for taking my question and you're just going to the transaction fees and maybe thinking into that and we did obviously.
And I had been up a lot and.
Can you maybe give us a sense of note.
As you ramp your origination capabilities and it will have.
And kind of get a.
As of <unk>.
Since the kind of the linkage of that to origination versus also maybe realization activity. If there is.
You see as your realization activity ramps up also we should see that translate it in some ways to the high.
The transaction fees to maybe just bigger some of the buildup.
Sure. So so we think about our platform and <unk>.
The is the landscape has evolved over the last decade, and as our as our trends as our platform has evolved as mark and I and Martin of all said origination is the key to our business and so the ability for us to source product that we directly and originate whether it's in the commercial real estate resident.
Real estate corporate World, it's critical to our long term growth on that spread business.
The reality is the scale of our business today, the ecosystem of combining origination and structuring and then and the.
The need of syndication, it's like a flywheel the larger transactions you get there's a thinner of universe of folks that can provide those capital solutions for the company as I mentioned and Hertz being the 1 this year and again once that flywheel gets going and your ability to be important to borrowers as well as not only our <unk>.
And sheets, but third party institutional clients and the other Lps it's of critical flywheel. So yes, as we ramp up our bespoke origination and the U S, but globally and our dialog with all different types of industrial expands you will expect to see larger transaction fees and as I said it.
Stingley enough last year with our success of the transactions the AD knock and the a b and Bev our ecosystem with large U S insurers dramatically increased and not only did they come in for vehicles and SMA has on those types of products.
But at the expanded back into our business and some of our opportunistic impact infrastructure and I suspect you'll see a lot more activity all of those investors in the fund 10, so the flywheel and the ecosystem are connected the whole capital solutions capital markets transactions, how it works.
Queen all 3 of them are inherently connected and it's a big growth area and we brought in some great leadership, we think that our capital markets and integrated platform. The fact that we don't have any information barriers between the all of our businesses what's.
And what's going on and the syndication loan mark syndicated loan market with direct lending, which we have been a big player and with our JV with Mubadala. These we're all connected and Youll see us talk continuously about those and the quarters and investor day to come.
Thank you. Our next question comes from the line of Gerry O'hara from Jefferies. Your line is now open.
Great Thanks, and maybe.
Maybe 1 for Martin.
I appreciate the comments kind of around continued investment.
With respect of comp expense, but also balanced against mid teens or better FRE growth expectations, and I suspect, you'll probably of flesh a little bit of this out during the Investor day, but can you give us a little bit of a sense of how to think about FRE margin over you know over the next kind of I guess 6 to 12 months.
Or longer as as it relates to those comments. Thank you.
Yeah, So Jerry what we're actually we're really focused on FRE dollar growth, we're very comfortable with our margins, where they are which is sort of low to mid fifties and.
The investment and building out of the platform needs P&L Capex and so.
And you invest now for revenues later so.
We are.
We suggest using the the numbers that mark.
As outlined on.
On doubling and yield and a 50% growth and opportunistic and sort of as a baseline.
The 15% of free growth rate.
I would expect that the margin will sort of hold around current levels and we.
We'll always be investing for our future.
The future growth opportunities that we see ahead of us.
Thank you.
Our next question comes from the line of Devin Ryan from JMP. Your line is now open.
Hi, Thanks, This is Brian Mckenna for Devin.
A little early but what are your initial expectations for a private equity fund 10 fund raising do you think you'll be able to raise something similar to <unk> 9 which was about $25 billion and theres clearly a lot of deployment opportunities across the market. Today. So how do you think about appropriately capping the fond of relative to the current deployment backdrop.
And that's our working plan our working assumption is that we will seek to raise a fund and the same size or similar size to that which we have.
Thank you. Our next question comes from the line of Adam Beatty from UBS. Your line is now open.
Hi, Good morning. Thank you for taking the question I wanted to circle back to the third of the 3 themes the mark laid out and the opening of specifically Fintech driven change in alternative management.
And we can infer something from the discussion of victory Park and some of the other deals, but just wanted to give you the opportunity of frame out what you see as the 2 or 3 most important changes the.
And as being asked if you will of the alternative management industry by Fintech and you might want and say the answers for later on thank you.
But what we will do a little of this now, but I think there of some of the obvious the fee.
First comes to me in a balance sheet most of the Fintech providers.
Do not want to be the owners of the assets they want to be the pipe or the originator.
And we are an excellent partner for.
4 of platforms that we trust, whose underwritings, whose underwriting we trust with full visibility and full credit and.
Documentation due diligence and what you will see US do is what we've been doing backing those who we think are winners taking stakes, where we think it's important to take a stake and otherwise facilitating and infrastructure and an ecosystem.
And that generates the kind of fixed income replacement of 150 to 200 basis points over comparable and investment grade that we are looking for and we have a huge appetite for this and we are a relatively easy partner to work with and very commercial.
The second places we are a massive user of.
The Fintech services look at our securitization business, which is the first area that we are attacking with figure.
And this is an opportunity for cost reduction.
Documentation of improvement.
That data gathering speed to market.
And I doubt this will be the last of the partnerships that we have in terms of validation of <unk>.
Blockchain or other types of services that offer these opportunities.
And that's before we start thinking about our own business.
Jim alluded to it but.
If you think back and to Jim's comments on the securities excuse me the syndication business.
And the syndication business has existed and its existing form for ever.
We generate and a centralized way a clearinghouse of product and it sold salesperson to sales person.
My guess is you will see over time, some amount of technology applied to that and the pace of innovation is actually increasing and what we're seeing is a lot of the most interesting innovation is taking place in the high net worth and ultra high net worth and China's first.
And I expect that to continue over the near term and ultimately to move into the institutional channel.
Final thing I would point to is the the entire documentation process the.
Subscription and signing on for institutional partnerships is surprisingly and.
Antiquated and probably the best where and I could find I think the streamlining of our business.
Through the use of technology, including through interactions with our investors is just kind of gather steam.
But those would of I'd say, the mundane and more to come.
Thank you. Our next question comes from the line of Bill Katz from Citigroup. Your line is now open hey, thanks, so much.
And I think it sounds that you're going to spend a little more time and this in October so perhaps leave it to them, but you obviously have the 1 inside of in particular has been selling rather heavily just given everything that you're doing in terms of funding growth elsewhere and the opportunity to move some of the technical overhang, particularly given the overall change among the the 3.
The original partners.
Yeah Bill this is alternatives.
But we would we would do what we can to avoid.
A significant and persistent.
And the selling of stock.
Obviously subject to agreement, but there's there's the obvious.
Structural transactions that we can the we can look at to do that my sense is he said he's comfortable with what he's done.
And as he steps back from the business he wanted to lighten up of it.
So it's not surprising.
But some of them.
It will make its own decisions and if we can facilitate that then we will.
Thank you. Our next question comes from the line of Patrick Davitt from Autonomous Research. Your line is now open.
Oh, Hey, guys. Thanks for the follow up the.
The credit performance fees, it was pretty outsized for of non <unk> results and could you give a little bit more color on the driver of that and in that vein as we look into <unk> could you give us an idea of how the hedge funds that drove the big 4 key performance free last year of tracking relative to last year.
Continued to do well of course is the just a reminder of the product that has a limited draw down and window of 12 to 18 months and then it's monetized where on a core for now and Theres been some great success of that platform and the last 3 or 4 years, hence the development of the new products of course, plus which expands it but that really was probably the the.
Key reason on a quarter to quarter basis, yes. It was a couple of different funds and country.
Patrick.
And 90% of close to 90% of of the total carry came from fee and that was that was across the portfolio of funds, it's actually interesting the.
We're seeing the tail end of fund 7 the.
And the phone line and the bulk of the carried coming from funded and hybrid values contributing as well so.
Each of those funds and says.
A diverse portfolio of investments, which are starting to monetize.
Principally and funded.
If on line is helping around the edges and so as we look forward. The main story will be funded realizations for the next.
Handful of years and then fun.
On line should pick up on the on the back of the and and real size.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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