Q1 2025 Apollo Global Management Inc Earnings Call
Michael Jackson, David Sambur, John
and many more. Thank you. Thank you.
Speaker Change: Good morning and welcome to Apollo Global Management's first quarter 2025 earnings conference call.
Speaker Change: During today's discussion, all colors will be placed in listen only mode and following management's prepared remarks, the conference call will be opened for questions
Speaker Change: Please limit yourself to one question and then rejoin the queue. This conference call is being recorded. This call may contain forward-looking statements and projections which do not guarantee future events or performance. Please refer to Apollo's most recent SEC filings for risk factors related to these statements.
Speaker Change: Apollo will be discussing certain non-GAAP measures on this call, which management believes are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to gap figures in Apollo's earning presentation, which is available on the company's website.
Speaker Change: Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Apollo fund. I will now turn the call over to Noah Gunn, Global Head of Investor Relations
Great, thanks operator, and welcome again to our call. [inaudible]
Speaker Change: joining me to discuss our results and the momentum we're seeing across the business.
Speaker Change: Mark Rowan, CEO , Jim Zelter, President, and Martin Kelly, CFO .
Speaker Change: Earlier this morning, we published our earnings release and financial supplement on the investor relations portion of our website.
Speaker Change: As you can see, first quarter results marked a strong start to the year. [inaudible]
Speaker Change: We generated record fee-related earnings of $559 million or 91 cents per share.
Speaker Change: Spread-related earnings, excluding notable items of $826 million or $1.35 per share, and adjusted net income of $1.1 billion or $1.82
Speaker Change: cents per share. In addition, we declared a cash dividend of 51 cents per share of common stock for the quarter ended March 31 representing a 10% increase from our prior quarterly run rate and consistent with the growth trajectory we provided at investor day. And with that, I'll now hand it over to Marc. I'll hand it over to you.
Marc: Thank you Noah, and thanks to all of you joining this morning.
Marc: As Noah started off, strong results, particularly amid a very volatile market, FRE of 559 up 21% quarter-over-quarter or I should say year-over-year, SRE of 826X Notables, AUM of 785 up 17% year-over-year
Marc: Record inflows, 43 billion in the quarter, inclusive of 26 billion out of theme. [inaudible]
Solid origination quarter at 56 billion lead primarily by platforms
Marc: And most importantly, fund level returns strong. I'd call out two particular areas in the credit business 8-12% now, depending on the fund on an LTM basis and in our hybrid area 19% on an LTM basis.
Marc: In communicating what's going on in this market, most of the questions I've received over the past month have been about the macro, so let me start there. It's never been more important to understand the manager philosophy and thus the direction of the business. You as investors, you should expect divergent paths for public asset managers. [inaudible]
Marc: For us, purchase price matters in all markets. In debt and equity, in up markets and down markets, purchase price always matters.
Marc: We are not a current period profit maximizer. That means we are willing to sit things out. We are willing to reduce leverage. We are willing to wait for the fat pitch. We are willing to wait for the fat pitch.
Marc: Three, we are relentlessly focused on origination as our source of excess return. We are not writing market trends. Hope and prayer, we have found to be very poor business strategies, but good strategies for life.
Marc: Just a quick example of this, ADS, ADS was one time leveraged in January of 23 [inaudible]
Marc: Prudent Management of the Vehicle took leverage down to 0.5 times in January of 25.
Marc: We have earned the right to deploy in this market, and we expect an acceleration in returns rather than a reduction in risk. This is a totally different positioning than almost everyone else in the marketplace and reflective of a philosophy by which we run the business.
Marc: Let me really pivot to macro. The last few years, through Q1, I would describe as hyper-US exceptionalism.
Marc: Money from around the globe found its way into the US primarily into our listed markets and indices.
Marc: In the equity market, ten stocks of the S&P 500 stood for 40% of the index. The S&P 500 stood for 40% of the index.
Marc: The video alone was larger than the market cap of every stock exchange in the world other than Japan, and those 10 stocks reached a height of a 60 PE on a current earnings basis.
Marc: Incredit, Trip will be corporate spreads tight and below 100 basis points. The last time that happened 27 years ago in 1998, CLOs, tightest spreads in a decade.
Every asset manager was offered a choice. [inaudible]
Marc: They could continue buying into this trend, adding risk, adding leverage, reducing credit quality to chase returns . . . .
Marc: or they could reduce risk, reduce leverage, prepare for the fat or I should say fatter pitch, and rely on proprietary origination to try to get them through while public markets and the coral early in private markets did not offer acceptable risk adjusted returns.
Marc: For us, we found our return to origination and structure rather than reaching down the credit curve.
We have built massive funding and reduced risk. [inaudible]
We are well prepared.
Marc: We believe we are one of the largest active buyers of assets post-liberation day, 25 billion in April alone.
Marc: Interestingly, mostly in public markets. Public markets were the fastest to adjust from a price point of view.
Marc: and exhibited what we expect to see going forward, limited liquidity. The equity market pretty much at all times has liquidity, but investors are discovering what we have been saying for years. There just is no liquidity in publicly traded fixed income markets. [inaudible]
Marc: and therefore we expect extreme price volatility to the point where sometimes public markets offer better returns on a risk-adjusted basis than private markets.
This philosophy impacts the two businesses.
Marc: In asset management, we're sitting with 64 billion of dry prep powder. [inaudible]
Marc: Really strong investment performance. I'd highlight particularly in private equity. Private equity, their most recent fund, fund 10, sitting with a net IRR at the end of the quarter of 19% versus 9% for industry peers over the same time period. Strong DPI.
Purchase Price simply matters. [inaudible]
Marc: Philosophy and Performance and Product Breath is resonating with our client base. [inaudible]
Marc: Jim will talk to you about what's happening in capital formation, but think about the five or six products that are really scaling. ADS is greater than 20 billion in three years. S3, our secondary business, 10 billion in less than three years. Triple A, greater than 20 billion in three years.
Marc: ABF, over 7 billion and less than two years, Accord, 8.5 billion and less than two years. [inaudible]
Marc: We feel good about what we've done, we feel good about the communication we've had with our investors and partners, and they understand our view of markets and how we have prepared for the more evolved environments that we are seeing today. Thank you very much.
Marc: In retirement services, the macro trend continued to play out, exceptionally strong demand for all forms of guaranteed income, reflecting both higher rates and an aging population.
Marc: We saw interesting competitive behavior in Q1. Think about this. Corporate spreads collapsed. Pre-pays of higher yielding assets hit records.
Marc: and yet we saw increased competition in the most competitive of the channels for retail sales of fixed annuities as competitors tried to make up shortfalls with volume and by taking on more risk in asset selection.
We chose a different direction.
Marc: Heider spreads made it a great time to fund in less competitive channels. We raised $26 billion in the first quarter and another $10 billion in April .
Marc: We invested that money more in cash, in treasuries, in agencies, and paying down leverage. That is not without its cost, but it sets us up well in a volatile market.
Marc: That move toward more cash and less risky assets cost us approximately 15 million in the first quarter.
Marc: and, if not deployed, will cost us some $30 million for the year. However, $14 billion was invested in April alone at 50 basis points wider spreads than those available in Q1.
Marc: Lower rates, now forecast and excess of those that we discussed at Investor Day, plus sizeable pre-pays from the record tight spreads in Q1. We'll create headwinds. The opportunity for us is a strong asset pipeline of proprietary origination.
A continuation of the wider spreads we're seeing in April.
Marc: and our ability to run the business in a volatile market because we have prepared for it. We run a scene with a principal mindset and a long-term focus. A scene is in an excellent position.
Marc: on an absolute basis relative to nearly all peers, having four different funding channels which were especially important in Q1.
Marc: against a backdrop of strong secular demand for retirement products. And as you can see, we are spring loaded on both sides of the balance sheet.
Marc: A more difficult forecast in an uncertain environment, but one also filled with opportunity. [inaudible]
Marc: Let me return for a moment to the industry that we are in. This is not unique to Apollo. This is the entirety of our industry. [inaudible]
Marc: We have built this industry over 40 years out of the smallest bucket of our institutional clients called alternatives.
Marc: We are fortunate. We now have another sizable bucket called individuals.
Marc: We have a third bucket which are retirement services companies who have witnessed the success of a theme and are starting to emulate.
Marc: We also now have institutions who for the first time are entertaining the use of privates.
Marc: particularly private investment grade in their fixed income bucket, and we expect eventually will replace some portion of their public equity buckets with equity that is private, but that's for another day.
Marc: Most interestingly, over the second half of last year, and now the beginning of this year, we're seeing yet another source of demand play out, and that is in the form of traditional asset managers.
Traditional asset managers are in the process of redefining.
What active management is? [inaudible]
Marc: We always thought of active management as the active buying and selling of stocks and bonds.
I now believe we will see active management. [inaudible]
Marc: as the public market beta, married with appropriate private market assets and structures that investors understand, like mutual funds and ETFs and other rights.
Marc: These traditional asset managers, I expect, will be large consumers of private assets and will reach clients that our industry probably would not have reached on its own. Whether we see the interesting innovations in model portfolios [inaudible]
for the interesting partnerships.
Marc: or we just look at what we're doing on our own, whether it is access to private credit in a daily liquid wrapper through the State Street PRIVETF.
Marc: or the income solutions we've launched with Lord Abbott through an interval fund or it's introducing privates into retirement solutions through a target date fund partnered with State Street.
Marc: Across the board, we are working with traditional asset managers to integrate private assets in an appropriate way into products that we in the industry.
Marc: Never really expected. These strong sources of demand, starting with the original institutional base, and now moving all the way for traditional asset management.
Marc: I think 410 very well for our industry, so long as we are focused is not growing too fast and too fast to me, we are in the business of excess return per unit of risk. Therefore, we are able to grow only as fast as we are able to originate good assets. [inaudible]
Marc: that offer those risk reward characteristics. Thus, our relentless focus on origination as much as we possibly can across the board in most of the asset classes.
We're also seeing interesting innovations.
Marc: Across our business that I would call out, not just in traditional asset management? [inaudible]
Marc: But the early signs of progress in defined contribution in 401k and tax advantage.
tokenization and digital markets. [inaudible]
Structured Notes and Portfolio Solutions [inaudible]
Marc: I expect the level of creativity at our firm and in our industry to create interesting opportunities, again boosting demand for private assets and as you know, I am very bullish.
Marc: on the demand for private assets, and most days that wake up concern more about the supply and thus origination.
Marc: Uncertainty leads to volatility, but volatility historically has been our friend.
Speaker Change: We would rather have uncertainty from our current position of strength than any other way. With that, I'll turn the call over to Jim.
Jim: Thanks, Marc. I'd like to start by sharing some perspective and view on the recent market volatility. Thank you very much.
Jim: The current administration was clear on their objectives, free and post-election. They want to revitalize American industry, bring back manufacturing, focus on domestic energy production, and stimulate the industrial global renaissance.
Jim: Terror of Taxes and Regulation are in the three-legged stool to support these objectives
Speaker Change: While the tariff should not have come as a surprise, the scope and approach clearly battle markets. At Apollo, we've been preparing for this environment. [inaudible]
Jim: like this environment, and positioning the firm, as Marc mentioned defensively, an anticipation of this market disruption with dry powder and liquidity to thrive.
Jim: As a reminder, we run our business as an equal opportunity investor.
Jim: with the ability to pivot between public and private, primary and secondary, allowing us to focus on the most compelling risk we've worked. [inaudible]
Jim: As market structure has evolved and private credit has grown far beyond direct lending to include vast pools of investment-grade assets . . .
Jim: We believe our presence has been amplified given the differentiated model and strong relative position to address this broader opportunity set.
Jim: Our long-dated capital has clearly demonstrated this capacity in the investment grader arena, complementing our expertise in the non-investment grader arena over time.
Jim: In recent months, when public markets went no bid, we brought our own bid This wasn't just liquidity, it was leadership [inaudible]
Jim: For some, capital light has become code for, heads we win, tails we win, and hopefully our clients do okay.
Jim: In contrast, our aligned client-centric model, along with our principal driven balance sheet allows our platformer degree of maneuverability that is unmatched.
Jim: Over many years, we built a platform to deliver stable, strong performance for our clients, and Q1 was no exception.
Jim: Touching on origination, as Mark mentioned, we originated 56 billion of assets during the quarter, representing the early 30% growth year over year.
Marc: Corps Credit, High Grade Corporate Solutions, Equity and Hybrid, and significant momentum to start the year positions us to hit our full year targets of exceeding last year's record level of volume.
Jim: Even with credits breads at or near generational tights, the advantages of our origination engine shine through.
Jim: For example, our 16 affiliated platforms in core credit channels, we originated nearly 49 billion of assets at 200 to 250 basis points of excess spread versus comparable rated corporates or 375 over comparable treasuries.
Jim: In the first quarter, we observed market tightening of approximately 30 basis points to levels representing generational tights before subsequent widening of 30 to 45 basis points in April .
Jim: Our origination activity continues to be very broad-based with diversified flow that is not dependent on any one platform or transaction .
Jim: Deep dive, we originated over 11 billion by the Broad Sponsored Channel in more than 80 different financing opportunities.
Jim: showcasing our leading presence and depth and connectivity to the market.
Jim: Just recently, our leadership in the financing for caro health care sponsored by KKR is another example where we stepped into a structure at attractive financing solutions in lieu of a broadly syndicated loan package.
Jim: The sponsors selected of the Apollo Ed Consortium, owing to our speed of execution and certainty of closing.
Jim: We believe wins like this create a flywheel effect where demonstrated results lead us being the first call for solutions to broad clients.
Jim: elsewhere, with our infrastructure and energy investing franchise, we signed, committed, or deployed over 3 billion during the quarter across a half-dozen opportunities across the globe.
Jim: highlighting our growing presence to originate with and finance the ongoing Global Industrial Renaissance.
Jim: This current environment provides an opportunity to stay close to our clients and understand how we can be helpful and best serve their needs.
Jim: For example, we continue to work closely with our multiple bank partners. The recently announced financing for the Jefferson Carbota Boeing via our city partnership is a great example of our ongoing collaboration. Thank you very much.
Jim: During this time, our scaled durable capital base and structuring expertise allowed us to offer flexible solutions with certainty for borrowers.
Jim: As a result, our origination pipeline in a variety of areas with particular focus on high-grade capital solutions and hybrid has never been broader.
and Wider. [inaudible]
Jim: Turning to capital formation, we generated record quarterly organic inflows of $43 billion across the business.
Jim: comprised of 18 billion from asset management and a remarkable 26 billion from a theme. [inaudible]
Jim: Our Capital Formation Engine is highly differentiated and less prone to stick-local fundraising dynamics.
Jim: and our historical strong presence within the institutional channel are building momentum in wealth channel and our market leadership and retirement services is a formidable combination.
Jim: Within the 18 billion of inflows from asset management in the quarter, approximately 70% went to credit oriented strategies and 30% to equity oriented strategies with contribution coming from a broad array of investors around the globe.
Jim: Two strategies in particular, a core plus, our opportunistic credit strategy, and S-ray sponsor and secondary solutions, both recently held successful final closings that demonstrate that our approach is resonating. [inaudible]
Jim: S3 Equity and Hybrid Solutions Fund 1 closed with a 5.4 billion commitments bringing total capital raised across the S3 ecosystem to nearly 10 billion since launching three years ago.
Jim: and Accord Plus Fund II, closed with 4.8 billion of commandments which when combined with the Associated Managed Accounts bring the capital, brings the capital raise for this strategy day and a half billion in less than two years.
Jim: Global Wells continues to be an important strategic contributor to our growth and we are extremely excited on the momentum we are seeing in that business. Thank you very much.
Jim: The emergence of a market volatility did not have an observable impact as we generated our best fundraising quarter to date approaching 5 billion in a quarter and 85% year over year increased from 1 quarter to 24.
Jim: and I would add that that's across 18 separate strategies encompassing our semi-liquid suite as well as a variety of drawdown and QP offerings.
Jim: We saw a notable sprank in Asia during the quarter, as our offering continues to grain fraction in that region.
Jim: We continue to effectively scale a business with six strategies now above 1 billion AUM. And while still early, the growth trends in the wealth channel are showing signs of durability post liberation date.
Speaker Change: A theme had an outstanding quarter as mentioned with 26 billion of organic flows, the highest results on record. By channel, interflows were driven by 10 billion from retail, 11 billion from funding agreements, and 5 billion in flow re-insurance.
Speaker Change: Retail flows were led in spring by MIGA's and FIA's, and the FABN issuance was the strongest on record as we leaned in and took advantage of very fable issuance spreads as Marc mentioned.
Speaker Change: In flow re-insurance, we capitalize on the strategic opportunity in the U.S. client with a U.S. client that drove outsized by him. [inaudible]
Speaker Change: As we progress throughout the year, we continue to expect a theme's mix of new business will look like last year with strong activity in the funding agreement and retail channel.
Speaker Change: A theme remains extremely well-positioned to serve the enormous needs of the growing retiree population and executing unnecessary opportunity will enable a theme to durable grow earnings in the future.
Speaker Change: Our team remains focused on serving our clients and deserving our promise of excess return.
Speaker Change: We are leaning into areas of imbalance between capital and opportunity. [inaudible]
Speaker Change: and we've been extremely active in the market over the past month leaning into volatility with size speed and structure.
Speaker Change: We are viewed as a partner of choice to provide capital solutions to companies unable to go public.
Speaker Change: provide liquidity solutions to DPE's that need realizations and provide alternative pools of capital to public companies seeking fund diversification or simply CapEx growth.
Speaker Change: If the client of dialogue in recent weeks is any barometer of the demand of our services, then the outlook for Apollo is very, very bright. The open architecture and integrated model of our firm allows us to pivot and navigate swiftly in periods of short or extreme volatility.
Speaker Change: The recent stretch has clearly been one of our busiest in the last few years and we're approaching the opportunity from a position in strength.
Marc: Since the beginning of April , in addition to what Marc mentioned is the IG activity of gross 27 billion, we have participated in over 40 direct lending or financing transactions.
Speaker Change: and have also seen strong activity in the NAV loan finance sector.
Our pipelines remain incredibly robust across our firm.
With that, let me turn the call over to Mark.
Marc: Thanks, Jim, and good morning, everyone. Our Q1 results demonstrate the strength of our platform and our ability to execute in a dynamic environment. I'll quickly walk through our financial results, highlight some key drivers that will position the balance of the year, and then touch on capital allocation.
FRE
Marc: In asset management, we generated $559 million of fee related earnings for the quarter, a new record, the FRE group by 21% year-over-year, and was driven by three components.
Marc: 18% management fee growth with notable strength from credit, which grew by 23%
Marc: Capital solutions phase of more than $159 for a quarter, a very strong outcome in view of the emerging volatility, an expense discipline with combined comp and non-comp expenses going by 11% year of a year.
Marc: The optic in compensation expands reflects continued investments across our business to execute on our broad set of growth opportunities.
David Sambur, John
Marc: 17% overall revenue growth combined with 11% overall cost growth resulted in approximately 200 basis points of FRE margin expansion year over year.
Marc: Consistent with prior comments, we remain confident in the long-term margin potential of the business and expect to see expansion over a multi-year period as our business continues to scale.
Marc: Key drivers within our FRI growth plan for 2025 include sustained momentum in global wealth, continued strength in third party credit more broadly, in particular our asset-fac-financed business and our origination platforms.
Marc: and Growth in PE Adjacent Businesses within Equity, Specifically Hybrid Value and Secondaries.
Marc: Given the momentum we see in the business, we are very confident in our 2025 earnings guidance.
Marc: SRE, at the same time, Athens Business is facing a number of market-driven uncertainties which I will touch on in a minute.
Marc: Leane's net-invested assets grew by 15% year-over-year, driven by record-organic inflows, with strength across the three channels that Jim just violated.
Marc: We generated $826 million of SRE for the quarter, excluding notable items. [inaudible]
Marc: Adjusting to our long-term 11% return expectation on the alternative portfolio will contribute an additional $29 million of investment income.
Marc: The alter-turn for the quarter came in higher than our pre-release estimates due to positive valuation adjustments and mid-late quarter volatility
Marc: The notable item in the quarter stem from a change to how we recognize income on certain derivatives and resulted in a $22 million unfavorable impact within cost of funds within the quarter.
[inaudible]
Marc: In spread terms, net spread excitables of 129 basis points declined by eight basis points sequentially, and you can see the components clearly laid out on the bridge we provide within our earnings presentation.
Marc: Recall that spread-related earnings and net spread results are partly a function of the environment and partly from proactive choices we are taking to position the business for long-term success.
Marc: Relative to our SRE target for the year of $3.5 billion, which contemplated an 11% alteratone.
Marc: We are seeing one and a half additional rate cuts, which is about a $40 million headwind if realized.
Marc: Competitive pressure in the retail channel of approximately 10 basis points on an assumed 35 to $40 billion of volume.
Marc: along with $40 million of headwinds from higher asset prepayments.
Marc: Those are the headwinds along with the liquidity bill that Mark referenced earlier. Thank you.
Marc: And collectively, they impact both net investment income and across the funds trends.
Marc: In view of these dynamics and assuming normalized investment spreads for the balance of the year, instead of the widespread conditions in April , we expect a mid-single-digit growth rate for 2025 off the rebased $3.2 billion starting point.
Marc: We have an opportunity to own some of this back based on the deployment pipeline and market volatility providing wider spreads in which case our growth rate will be higher.
Marc: While different macro or business variables come into play in any given year, you should trust that we'll do sensible things to navigate the environment and we remain focused on delivering the 10% average growth we laid out within our five year plan. [inaudible]
Marc: Bernie finally to capital allocation, we deployed over $700 million for sherry purchases in the first quarter, including $130 million for opportunistic buybacks.
Marc: As we have done in the past, we will seek to be relatively more active when there are particularly compelling opportunities or dislocation in our share price
Marc: Over the last 12 months, we've returned $1.7 billion of capital to shareholders through a combination of dividends and opportunistic share purchases, while also allocating more than $200 billion of capital to strategically invest in future growth initiatives.
Marc: During the quarter, we announced the acquisition of Bridge Investment Group in an all-star transaction with an equity value of approximately $1.5 billion.
Marc: Bridge is an established leader in residential and industrial real estate as well as other specialized real estate asset classes.
Marc: We believe Bridge will enhance our existing real estate business, providing immediate scale and origination capabilities that fit synergistically within a policy ecosystem. In particular, asset demand from Athene and Aris, our semi-liquid real estate oriented products.
Marc: We look forward to welcoming the bridge team on board later this year, and we expect the transaction to close in Q3 subject to outstanding closing conditions.
Marc: And with that, I'll turn the call back to the operator for Q&A. Thank you.
Thank you. The floor is now open for questions. Thank you very much.
Marc: If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your mind is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.
Speaker Change: Once again, that is Star One to register a question at this time. Today's first question is coming from Glenn Schorr of Evercore ISI. Please go ahead.
Glenn Shore: Hello there. I'll apologize in advance. I want to try to simplify the conversation even though you gave us a lot on SRE and I'm thinking
We.
Glenn Shore: We a couple of years ago we thought we were growing, you know, I would say call it mid double digits. We brought that guy down to 11% and now we're coming down to mid single digits just this year.
Speaker Change: I like you being conservative to the environment and waiting for a fat pitch. I like the growth that you've seen.
So can we break down? [inaudible]
Speaker Change: and what conditions could make you less conservative and put that money to work sooner. And then the flip side of it is, we didn't talk that much of there is a higher cost of funds, cost of funds is up 28%. I'm assuming that's tied to funding agreements, but maybe we could try to simplify it between...
Speaker Change: The Assetside and the Liability Sides, and then we can understand. And, um,
You know, which is the conservative piece versus the market environment. Thanks [inaudible]
Speaker Change: Okay, it's Marc. I'll do the macro and then Martin will do some of the micro.
Speaker Change: We underwrite the business on a spread basis and an ROE basis.
Speaker Change: Some products offer higher spread but are more capital intensive, some products lower spread but are more capital efficient. So we also have adjustments in the spread that we earned.
Speaker Change: Our goal is to run a mid-teens, historically 15 plus percent ROE business.
Speaker Change: If we run a 15% ROE business, we are more than covering our cost of equity and we are able to get outside funders to help us fund our business and that's the basis on which we want to do business.
Recall that to do that business. [inaudible]
Speaker Change: There's actually three things that get you to real spread. The first is your asset spread, the second is your cost of liabilities, and the third and the one we don't talk about often enough is OPEX, which is...
Very, very low for us on a relative basis. [inaudible]
Speaker Change: What we saw, and so now step back and think about what's happened. We went through COVID and COVID offered some of the lightest spread business we had ever seen.
Speaker Change: That business will roll off, as you know, throughout 25 and through a portion of 26.
Speaker Change: But the volume by which we've been doing business has been very, very strong because you've seen a significant tick up and volume over the past few years. We've been doing that higher volume business at wider spread.
Speaker Change: The conditions we saw in December and in the first quarter. [inaudible]
Speaker Change: We're not, in my opinion, healthy competitive conditions to put risk on the books [inaudible]
Speaker Change: I can only imagine what's happening on a competitive basis given that we are 25 basis points ahead just on op-x before you get to origination.
Speaker Change: But what we chose to do was to massively increase our use of funding agreements, which are the least competitive channel for us, and to pile up cash in Q1.
Speaker Change: and by paying down repo in other forms of leverage including FHLB. [inaudible]
Speaker Change: All that sets you up to redraw that when spreads widen, which is what we saw in the beginning of April and as we put money to work.
So now to your question of outlook.
Speaker Change: Outlook is in part driven by the interest rate environment. As you know, we have some sensitivity on a reduced basis to interest rates, but relative to where we had been, we now have one and a half more rate cuts. That is a headwind.
Speaker Change: We had competitive pressure in Q1 that is also a headwind. However, we saw massive spread wideening of the beginning of Q2. It's been a long time since we've been in Q1 that we've been in Q1.
Speaker Change: When Martin frames the year, the question is, do we see a return to normal, which is what is presumed in what Martin has said, or do we see a continuation of widespread business that we're seeing in April ? [inaudible]
Speaker Change: That will determine the direction. Martin has given you the conservative side of that because that is what we do. Thank you very much.
Speaker Change: derived by a lessening of competitive pressure in the liability origination cost of funds area and a strong pipeline of asset management at widespread, which was particularly good in rewarding in April .
Speaker Change: So that would be my macro and I'll let Martin add to that and see if we can do better.
Martin: I would only add as we look at the earnings profile ahead of us, there's there's pieces that we know and can predict with fire certainly and that's that's the behavior of the existing business and how it rolls off over time.
Martin: contractually, and then there's there's pieces of it that are sort of expectations which include pre-base and we obviously make assumptions and estimates of our pre-base but given the extraordinarily high conditions we saw [inaudible]
Martin: on spreads in silos in Q1, pre-pays are running a bit higher than we had three forecasts.
Martin: and then you get to the unknowns. And the unknowns are the components that mark right out, which are rates and both pace and spreads on putting that to work. So as I think about the relationship between the cost of funds and...
and the gross investment income. We're clearly under running.
Martin: on the business that we wrote in the quarter relative to the potential it has. [inaudible]
Martin: and it'll take a period of time which we're making. [inaudible]
David Sambur, David Sambur, David Sambur, David Sambur,
Stephen Chewbacca: Thank you. The next question is coming from Steven Chubak of Wolf Research. Please go ahead.
Hi, good morning. Thanks for taking my questions.
Stephen Chewbacca: So I was hoping to get some perspective on the wealth outlook. Sounds like you guys are continuing to see really good momentum. I was hoping you could speak to how flows were in AAA this quarter.
Stephen Chewbacca: where you guys are in the distribution or platform journey at the moment and if you could provide more context on the durability of those April flows and how it informs your outlook from here.
Stephen Chewbacca: Let me start off, and I'm sure Marc may have a couple of comments, but I would say if you go back 24 months ago...
Speaker Change: We've been clear with five billion in the first quarter this year and we've laid out a number, you know, 16, 17, for the year we feel quite strong on that number. There's no doubt there's been breadth in a variety of vehicles, ADS, AAA, ABC,
Um...
Speaker Change: AAA had solid numbers across the corner and was not an outlier, the upside of the downside. So what's been, what's clear to us?
is the, and we mentioned this before,
Speaker Change: Performance is critical, but it's also technology, it's education, it's red-the-pat platform.
Speaker Change: It's the ability to have portfolio solutions. In time, it will be your ability to fund and finance and really provide the breadth of product. So, we didn't see any wavering in the first part of April .
Speaker Change: April's been a strong month as well, but we do live in a bit of an uncertain world, but we still feel very strong about the rest of the year in aggregate on this channel.
Speaker Change: and many more. Thank you for watching. I hope you enjoyed this video. If you did, please give it a thumbs up and subscribe to my channel.
Speaker Change: Thank you. The next question is coming from Alex Blostin of Goldman Sachs. Please go ahead.
Alex Blostein: I appreciate you guys actually don't have a large flagship fund in the market today which might actually be a good thing right now but as you think about other sources of institutional demand in light of this volatility, how much more I guess durability do you see within that channel relative to maybe some of the other parts of the market? You know what I mean?
Alex Blostein: Investors around the globe, notwithstanding some of the actions would have taken place in the administration, you know, I would take a step back, we believe we have, you know,
Under...
Hit our weight. [inaudible]
Alex Blostein: in terms of grabbing our fair share over the last couple of years. [inaudible]
Alex Blostein: We're continuing to grow that. And when I see the dialogue with Mark Describes, our purchase price matters. You know, we are not on the apology tour around the globe. And people have seen the breadth and success of a variety of our investment strategies.
Alex Blostein: from the equity business across the board to our hybrid business and the breadth of our credit business. So, you know, the call notes that we see, the engagement we see, the results we see,
Alex Blostein: Make us very, very positive, notwithstanding a bit of a macro headwind about how global investors might see the US. So, we feel our share is going to, whatever's out there, we're going to gain share.
Alex Blostein: The dialogues have been increasing, and I think our strategies in terms of what we see going on in terms of how we run our business from purchase price matters to our origination focus, to our leadership and ABF.
Alex Blostein: to our leadership in the hybrid areas. These rural areas where people are really institutional investors are refocusing in their attention. Thank you.
Speaker Change: and we're garnering a very strong share. Well, maybe I'll just add in a frame what Jim said. If you go back in just a little bit of history.
Jim: We were fortunate in the creation of a theme and participating in a theme's growth, but a theme in its early days was growing much faster than Apollo, and so we were not in a position to really expand
Jim: The credit business in particular, but hybrid as a secondary matter, substantially with third party clients. A theme was taking everything we produced and more.
Jim: About four years ago, we finally crested the hill if you will on origination, and we have continued to diversify. So Jim is putting his finger on it. We have historically under earned our fair share.
Jim: of assets from the institutional channel. That has left us with more fertile opportunities going forward. If I look at where the dialogue is coming right now, insurance is a really strong part of this business.
Jim: Not only are they having to deal with the same tight spreads and therefore need to find ways to diversify, but just the acceptance of private assets as a more mainstream activity
Jim: is really increasing the opportunity set across the board insurance. [inaudible]
Jim: I would say we are origination constrained rather than client constrained in the investment grade portion of the business.
Everything we can originate at widespread, there's a home for. [inaudible]
Jim: And that business will grow as fast as we can grow origination. And we have to be careful as an industry, not to simply raise all the money because we can. We have to try as best we can to pace the growth of the capital side of our business with the growth of origination in our business. [inaudible]
Jim: and this is a different way of thinking about traditional asset managers. People who cover traditional asset managers.
But it is how we live every day.
Speaker Change: I have to add here, you know, Mark Spring of a point. When you think about how you all and how the marketplace looks at our business from a direct lending, it's very, very important for you to be able to commit to that sponsorized solution.
Speaker Change: The same analogy is going on in the high grade capital solutions.
You can't really work as agent. [inaudible]
Speaker Change: You need to be a principled investor and being able to go to that counterparty and deliver a solution?
Speaker Change: With capital on the screws, there's a reason why we've done a vast, vast majority of the transactions in the investment grade capital solutions business and we will continue to do so.
Speaker Change: because of our platform and the way that we engage with this aligned capital. You can't go out and source an idea and then say we'll come back in six weeks when our clients want to buy it.
Speaker Change: and that's the differentiating factor in our platform. So, origination is so tied into capital formation and that flywheel that we are taking a garnering, a greater share as deserved because of our platform.
David Sambur, Chris McIntyre, David Sambur, Chris McIntyre
Speaker Change: Thank you. The next question is coming from Bill Katz of TD Cowan. Please go ahead.
Bill Katz: Great. Thank you very much. Thank you very much. So more couple of big picture questions for you. I always appreciate your perspective on this.
Bill Katz: You talked about the intersection between public and private, and you've been positioned your franchise for that for a while, but a couple of your peers, as you mentioned, have sort of linked up on that sort of migration for the traditional's trying to chase the private side, and expanding distribution on both sides. [inaudible]
Bill Katz: So you have KQR now with Kappa Group, Blackstone Working with Wellington and others, Whitty Stand in terms of maybe a border linkage to potentially participate in that, and then secondly, just given the strong momentum of the business
Bill Katz: How are you thinking about large-scale M&A? I guess there's a large transaction out there where Apollo has been now publicly linked to that. I'm curious of your appetite to build into that channel as well. Thank you.
Okay. So... Okay.
Bill Katz: We have two announce public partnerships, one with State Streets and one with Lord Abbott. I would say this is a very active portion of our business.
Bill Katz: So much so that as you follow Apollo closely, you'll notice the peeling off of what we call a new market's group specifically to focus on traditional asset managers [inaudible]
Bill Katz: and I have said internally in the firm that I expect traditional asset managers to be potentially one of the largest sources of capital formation for us.
but I also want to give you the following perspective.
No one firm. [inaudible]
Bill Katz: and Service Capital Group, or State Street, or Lord Abbott, or Black Rock, or anyone else.
Bill Katz: We are all in the early days and these partnerships are about experimentation.
If we are right, [inaudible]
Bill Katz: The scale of demand for private assets coming from traditional asset managers is going to be quite large.
Bill Katz: I believe we, you, will eventually adopt the kind of thinking that we have, which is this is not about how many of these partnerships I can get papered. It's about how many assets I can originate that are worthy of inclusion because they offer good risk rewards. I believe we, we, we, we, we, we, we, we,
Bill Katz: It's a really weird dynamic over 40 years because for 40 years we've gone from a small group of firms doing alternatives.
to now a fewer number sizeable firms doing private markets. [inaudible]
Bill Katz: We've always been measured by or limited by our capital base.
Bill Katz: We're now in my opinion limited by our capacity to find good assets, and as Jim said, it is inextricably linked.
Bill Katz: Two capital formation because demand for private assets I believe does in some sectors today and will going forward exceed supply of private assets.
Bill Katz: And most people who cover our industry also cover traditional asset managers who historically have been judged by the quality and growth of their AUM.
Bill Katz: and I like these early partnerships, because we are learning a tremendous amount. [inaudible]
Bill Katz: But none of us have the size and scale today or in the future to serve the needs of the 10 largest asset managers on an exclusive basis.
Speaker Change: I'm very comfortable focused on origination and if I have a good asset, it will have a home. I don't worry about that [inaudible]
Speaker Change: Thank you. The next question is coming from Patrick Davitt of Autonomous Research. Please go ahead.
Scott Gunn: and many more. Thank you for watching. I'm your host, Scott Gunn.
I don't follow up on that last point.
Scott Gunn: You have been quietly launched on more, it's more quietly launched than others on this hybrid illiquid, liquid product with Lord Abbott. I think a few weeks before the other big partnership launched.
Speaker Change: Could you give more color on where that stands in getting distribution and any broader thoughts on being able to talk about when you think there could be a more tangible view of what the man even really looks like for these hybrid products? Thank you.
Speaker Change: Well, I think Marc touched upon it. I mean, certainly these, there's a reason why folks are partnering with those professionals because of their reach of distribution. We're not traditionally a direct to consumer.
Franchise
Speaker Change: And so we believe that our ability to whether it's new product creation, like we've done with State Street and Lord Abbott or just basic selling them SMAs or partnering on JVs
Speaker Change: There will be a whole litany of types of partnerships just like there's bank origination partnerships . . . .
Speaker Change: five years ago, you know, when one of us announced a partnership that was thought to be exclusive and now a variety of banks across a variety of asset classes have partnerships with us and many of our peers.
Speaker Change: That's what's going to happen in the traditional as well. There will be a degree of open architecture, there will be a degree of desire not to have concentration in one manager.
Speaker Change: and so these are all early stages to where the business is going and again, when we think about...
Speaker Change: When you think about the limiting capacity, it's not just aligning yourself with the platform and getting a product on it. It's actually producing the rare commodity which is these private assets. [inaudible]
Speaker Change: Traditional managers historically have dealt in the sandbox with public stocks, [inaudible]
and Public Investment Rate Bonds. [inaudible]
Speaker Change: and the sandbox of opportunities is limited to what has accused him.
We're bringing in a completely different perspective of actually originating...
The spoke solutions which we apply.
Speaker Change: and so, again, I do think Lord Abbott's been out there because we had to originally file it.
Speaker Change: over a year ago, not surprised by what we're seeing out of KKR in Capitol Group, but as Marc said, we believe that when we have these calls in the ensuing years...
Speaker Change: You talked about the institutional business, you talked about global wealth, we believe there will be a pillar on traditionals in the broad brush perspective is what we talk about.
Speaker Change: Thank you. The next question is coming from Ken Worthington of JP Morgan. Please go ahead.
Ken Worthington: Hi, good morning. Thanks to you in the question. You talked about tokenization as one of the innovations.
Ken Worthington: that will be meaningful for private assets over time. I was hoping you could help us link the two and how you see tokenization driving, maybe it's greater alternative access and ultimately driving greater alternative asset growth, but help us link the two together.
Speaker Change: Yeah, I think, again, I think you have to tie together. You have to have a view of a degree of open architecture and
Speaker Change: and those institutions decide to expand beyond pure Treasury investments. [inaudible]
Speaker Change: They will choose other yielding assets and from what we've seen interval funds because of the daily nav and the subscription attributes. Thank you very much.
are particularly attractive to a variety of potential digital platforms.
Speaker Change: and so we noted on a call, I believe either last call or two calls. [inaudible]
Speaker Change: Thank you. The next question is coming from Mike Brown of Wells Fargo Securities. Please go ahead.
Thank you. Bye-bye. Bye.
thank you for taking my question. [inaudible]
Speaker Change: So there's been a lot of negative headlines related to foreign LPs.
and many downloads and kind of...
Speaker Change: reducing their allocations to private markets or foreign LPs allocating less to the U.S. So, Marc, from your perspective, is this a true risk for the industry? Should we be worried about the potential backlash for U.S. managers or desire to invest?
Speaker Change: Lesson the U.S., and then it would seem to me that Apollo would be more insulated from this dynamic just given your business next, but just curious about how you think about your potential exposure here.
Speaker Change: So again, I'll start at the macro. We have lived through this period of hyper exceptionalism and I gave you the stats of what had happened to our debt and their equity markets. I believe we are now back to exceptionalism.
Speaker Change: The reality is, at least for the foreseeable future, there are not going to be...
Speaker Change: Alternatives to US capital markets for the most because the US market is still 60% of all the funding needs in the world.
Speaker Change: We will see reductions in allocations from foreign investors if current trends continue.
and I think that's to be expected.
Speaker Change: The vast, vast majority of capital, as I've suggested, came into our public indices, and we're now watching it leave our public indices [inaudible]
Speaker Change: and I don't think that's necessarily a bad thing. It's just we're moving, we've lived in this Goldilocks period of time of hyper exceptionalism that we're just not used to things going in reverse, but they do.
Speaker Change: In terms of our own business, on the margin, will we see certain pockets of limited partners where there's government pressure not to allocate to US until there's political resolution? I'm sure.
Speaker Change: Do I expect it to have a major impact on our business? No, I do not [inaudible]
I think the reality is...
Speaker Change: We are a source of diversification for almost every other portfolio and it's always good to step back and think about relative size and I, the stat, you know, I like, is just thinking about the size of the US debt market and then think about, you know, everyone says we're going to Germany. Well, the total market is 2.9 trillion. [inaudible]
Speaker Change: There's just no place to go right now. That does not mean that over time there will not be challengers to the US, but it's not one of the things that's keeping me up at night.
Speaker Change: Yeah, I would just add that, you know, the bar is going to be higher, Mark Common about Germany. Our travel schedules would not indicate that there's a lack of global demand for our products.
Speaker Change: But I would say like I was in Australia in the last month talking to all the super funds that you know the scale that's a that's a poor trillion that's a poor trillion.
Pot of Assets, going to 7 trillion. Thank you very much.
Speaker Change: By definition, Australia is not large enough for them to be able to service all of their needs. So, you know, I think we feel comfortable that they hurdle for foreign capital or non-US capital to allocate to managers.
Speaker Change: We feel like we're in a select group and the breadth of our strategies, our performance, the other attributes that we bring to a $10,20,30 billion manager, probably challenging, we're going to get our fair share. We're very comfortable.
Speaker Change: Thank you. The next question is coming from Benjamin Budish of Barclays. Please go ahead.
Benjamin Budish: Hi, good morning, and thank you for taking the question. You know, Marc, you prepared to Marc, she talked a lot about liquidity in public markets, sort of if you could talk a little bit about liquidity in private markets. It's something the media has kind of reported that you're poking around in, you know, providing more liquidity to the paper that you're originating. It's clearly part of, you know, what is required for your partnership with State Street for the ETF. So just curious if you could talk a little bit about your activities in terms of providing liquidity for private credit. How much capital this is? [inaudible]
Speaker Change: Sort of requires and what your ambitions are there. Thank you.
Speaker Change: Sure. First, you know, look, the reality is, we made significant changes in the plumbing of our financial system into following 2008.
Speaker Change: In the equity market, we had a number of firms step forward, Citadel among them, Jane Street, who provides liquidity in the equity market some of the largest providers of that liquidity.
Speaker Change: I've now been through hundreds of client meetings and I asked them who does this in fixed income.
Speaker Change: and it's met with complete silence and that is the answer. No one step forward to do this in fixed income.
Speaker Change: By some estimates, fixed income trading capital in the world today is 10% of what it was in 2008 and the market's three times its size [inaudible]
Speaker Change: The math is easy, we have a 30th episode of liquidity.
Speaker Change: I expect that in every risk-off moment, we are going to see...
Speaker Change: Significant movements in trading prices and fixed income because there just is no market. We're discovering that public is both liquid and illiquid and private is liquid and illiquid, just to different degrees.
Speaker Change: The second thing I'd ask you to think about, and then I'll get to your question. More than 20 years ago, some crazy bankers stood up in a meeting and said, loans are going to trade. And all of us looked at him and said, how could loans trade? [inaudible]
Speaker Change: Every loan is bespoke, there's no information, took 30 days to settle a loan, and yet, and they're not even securities.
Speaker Change: and yet here we are more than 20 years later and we have loan ETFs and loan mutual funds and we all think loans trade.
Speaker Change: Well, Jimmy Lee was right, Loans Trade, and JP Morgan made a market in loans who was earning widespread. Others on the street saw JP Morgan earning widespread and decided that that was unfair and they stepped in and lo and behold, we have a market that's comprised of dealers. [inaudible]
Speaker Change: We're kinda doing the same thing initially in investment grade private credit.
Speaker Change: We came out, and I've said to you, I think 18 months from now, we will not know the difference between public and private credit in the investment grade market. It will not be the issuers.
Speaker Change: It will not be the size, it will not be the rating, it will not be the provision of financial information, nor will it be the ability to buy and sell And so, in the context of the launch of the ETF, we've stepped forward and we're making a market and private credit [inaudible]
Speaker Change: and something tells me that given the competitive dynamic that a number of firms will not like that we will learn widespread and they will step in and make a market in private credit as well. And it's already happening.
That's kind of where we are. And...
I just see the more barriers we remove.
Speaker Change: From the notion of private, the greater market acceptance we're going to have, the greater regulatory acceptance we're going to have, and it's not that I worry about the elimination of the so-called illiquidity premium.
Speaker Change: I just don't think it exists. I think that premium is derived from originating a good asset.
and then structuring and controlling it. [inaudible]
Speaker Change: I come back to origination. I don't worry at all about having more transparency.
I don't worry about Daily Nav.
I don't worry about any of it.
We fundamentally exist for a real reason. [inaudible]
Speaker Change: The banking system, everywhere in the world, funds itself short and is really good and really strong at a group of activities.
Generally not long dated. [inaudible]
Speaker Change: The public bond markets around the world generally are also good in another group of activities generally simple and standard.
Speaker Change: Currently in Europe has no home, Read The Draw He Report, and in the US the home is with people like us.
Speaker Change: I like our chances, because everywhere in the world we're building infrastructure, we're building next generation data and power
Speaker Change: We're doing additions to our energy supply. We're redoing our manufacturing base. We're ramping up defense production. Almost every one of these activities is long dated complex and most are highly rated.
Trading liquidity transparency. Transparency.
Speaker Change: We'll increase the acceptance and the use cases for private, and that therefore all the value is going to come from those who can originate.
not from those who can obfuscate.
Speaker Change: I like our chances here and I think the market is going to develop very similar to what we saw happening in the loan market.
Speaker Change: and I think it's early days. I can't point to you where it's going, but the experiments are kind of easy.
Speaker Change: and take, you know, even in its most extreme, you know, a very successful ETF, 15, 20, 30 billion, a third private.
if everyone wanted their money in a month. [inaudible]
That's like a week's work here. [inaudible]
It's just not all that big. [inaudible]
for the payoff of acceptance. [inaudible]
Speaker Change: and transparency in this marketplace. Will it go beyond investment grade private? I don't know because already there's not all that much difference between private credit and 11 lending market and broadly syndicated. [inaudible]
Speaker Change: You know, the difference I sometimes joke is whether it's held by one person or by a group of people.
Speaker Change: The documentation is often the same, the credit quality is often the same.
Speaker Change: What you get when the private credit market, you get to have a one-on-one negotiation with the end buyer who can give you certainty and flexibility and give you something you can't buy a broadly syndicated marketed process.
Speaker Change: Not clear to me which is better or which is worse from a credit quality point of view but from a tradeability point of view.
Speaker Change: To the extent probably syndicated loans trade, I see no reason why private credit loans could not trade should the holder of those loans as I were to trade them.
Speaker Change: But let's not get there. Let's focus on IG for the time being and that's what we're focused on.
Speaker Change: Thank you. We're showing time for one final question today. The final question will be coming from John Barnage of Piper Sandler. Please go ahead.
John Barnidge: Good morning. Thank you for the opportunity. By knowing some of your prior answers you said it's not about how many partnerships an asset manager or financial sponsor can start but how many assets they originate that offer risk reward and you have those origination capabilities. Thank you.
John Barnidge: How far off, do you think the alternative space is from something that happened in the 401k space where the biggest providers garnered all the assets and then it became a consolidation opportunity for those at the top. Thank you.
John Barnidge: Look, I like the chances of the larger firms in this marketplace. The reality is however one may feel about this.
John Barnidge: The individual opportunity is an opportunity that is available to the established firms who are capable of managing and manning the resources necessary to serve large distribution channels.
John Barnidge: I think the same is going to be true in the traditional asset management area, the same as true in the retirement services area, the scale of need. [inaudible]
Just can't be met [inaudible]
by the sole proprietorship PE firm. [inaudible]
John Barnidge: That doesn't mean we get everything because I don't think that's the case. I think there are a number of firms in our industry who garnered the largest share of assets. Should they keep their imagination quality high? And fortunate to be one of them. I'm thankful every day that we are.
Speaker Change: Thank you. At this time, I'd like to turn the floor back over to Mr. Gunn for an additional or clothing comments. Thank you.
Scott Gunn: Great, well we really appreciate everyone's time this morning. If you have any questions or follow-ups on what we discussed, please feel free to reach out and we'll speak to you all next quarter. Thank you.
Scott Gunn: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or lock off the webcast at this time and enjoy the rest of your day.
Speaker Change: Oh, oh, now, oh, oh, oh, oh, now, oh You know I used to be alright when you woke me in the morning when
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