ATH Q1 2026 Earnings Call
Operator (AI Assigned): [MUSIC]Good morning. My name is Paul, and I will be your conference operator today. I would like to welcome everyone to Athene's Fixed Income Investor Call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for questions following the presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Jeanne Hess, Vice President, External Relations at Athene. Please go ahead.
Jeanne Hess (VP of External Relations): Thanks, Paul, and welcome everyone. We must remind you that today's call may include forward-looking statements and projections which do not guarantee future events or performance. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events, or changes in strategy. Please refer to Athene and Apollo's most recent quarterly and annual reports and other SEC filings for a discussion of the factors that could cause actual results to differ materially from those expressed or implied. We will be discussing certain non-GAAP measures on this call, which we believe are relevant in assessing the financial performance of the business, and you'll find reconciliations of these metrics within our materials available at ir.athene.com. On our IR site, you will also find three new presentations we published earlier this month on our asset portfolio as part of our commitment to transparency.
Jeanne Hess (VP of External Relations): These new disclosures provide more detail on our private credit investments, our allocation to alternatives, and our related party assets. Joining me today are Grant Kvalheim, CEO; Jim Belardi, Executive Chairman and CIO; LJ Tanguy, Chief Financial Officer; and Brian Weinstein, Partner and Head of Fixed Income Replacement Strategy at Apollo. During today's discussion, the presenters will reference certain pages or other information in the asset portfolio compendium, affiliated and related party assets deck, alternative portfolio spotlight, and the Q1 fixed income investor presentation. This information is being presented as of the dates indicated in those presentations. With that, I will now turn the call over to Grant.
Grant Kvalheim (CEO): Thanks, Jeanne, good morning, everyone. Now more than ever, trust and reputation necessitates greater transparency. Athene is in the trust business. We take very seriously that our first obligation is to meet the promises that we've made to policyholders. Athene helps people save for retirement and provides guaranteed income for life, a lifetime paycheck, making their retirement dreams a reality. When they invest their hard-earned money with us, they make a long-term commitment. We need to earn their trust, and we need to be true to it every day. The best way to do that is to be transparent in all aspects of our business and responsive to topics of interest in our industry. We are recognized by investors and regulators as the industry leader in transparency and disclosure. We publish an overview of our corporate structure and our stress test results annually.
Grant Kvalheim (CEO): When there were questions about funding and liability characteristics, we published a deep dive on the subject, and we remain the only insurer to publish quarterly forecasts of runoff. We operate this way because we have nothing to hide, and we believe the more that people know about Athene, the better. The long-term promises we make to more than 2 million policyholders are backed by our fortress balance sheet. We refer to it this way because we have $36 billion of gross regulatory capital, significant amounts of excess capital and liquidity, and third-party equity capital available through our sidecar. Our credit ratings are A+ or equivalent from S&P, Moody's, Fitch, and AM Best. Since our founding in 2009, we have achieved upgrades over time, and we remain committed to achieving a double A rating.
Grant Kvalheim (CEO): 95% of our assets are fixed income, and 98% of our available for sale fixed maturity securities are investment grade. These assets are matched with persistent, predictable liabilities with a 7-year weighted average life. 90% are surrender charge protected or cannot be withdrawn. Matching long-dated sticky funding against investment grade fixed income allows us to be a patient holder of high-quality assets. The high-quality orientation of our balance sheet is evident in lower credit losses. Further, none of the large individual exposures disclosed in our asset portfolio compendium are on a watch list, either internally or at the rating agencies. We've all heard the noise around private credit in recent months. Many of the headlines you read conflate levered lending with the broader private credit marketplace.
Grant Kvalheim (CEO): I don't think I've ever seen a period of time in my career where there is a greater divergence between the press reporting and what's actually going on in our industry. The private credit market approximates $40 trillion, of which $38 trillion or 95% is investment grade. The high yield levered loan narrative that dominates press coverage reflects a narrow slice of the market, $2 trillion or 5%, and is not representative of the private credit held on Athene's balance sheet. Our exposure to levered lending rounds to 0. On page 16 of the asset compendium, we provided three lenses of private credit currently used in the industry. Some insurers have started to present a view that encompasses areas of private investment grade, specifically private IG corporates and private ABS.
Grant Kvalheim (CEO): Under that view, Athene's private credit allocation is approximately 20%, and 94% of that is investment grade. That 20% is comprised of private ABS at 11%, private corporates at 9%, and trace amounts of private CLOs, CMBS, and RMBS. Considering an even wider view of private credit, including most of what sits on a bank balance sheet, such as mortgages and other 144A instruments, one could view our allocation to so-called private credit at 63%. To be clear, we like these asset classes. We wish we had more of them. It sustains our competitive moat around asset origination while maintaining very high credit quality. Within our materials, you'll also find detailed information on our CLO and ABS investments. Investment grade CLO tranches have been one of the most successful asset classes we've owned.
Grant Kvalheim (CEO): They have outperformed investment grade corporate bonds on defaults and recoveries over the last 25 years while providing significant incremental yield. Athene CLOs have 22% weighted average credit enhancement, meaning a sizable portion of the underlying collateral would need to default at zero recovery before the notes lost money. At our peak, we held roughly $40 billion of investment grade CLOs. It was 11% of the total portfolio. Over the past year, we've let a portion of the portfolio run off in normal course without replacing it, reducing it to approximately 9% at year-end. We expect the overall allocation to continue to decline because in today's tighter credit spread backdrop, CLOs are not offering as much excess spread as they once were. Enter AMAPS, which Apollo created as an innovative CLO replacement for Athene and for other insurers.
Grant Kvalheim (CEO): A comparative illustration can be found on pages 39 and 40 of the asset compendium. AMAPS, which stands for Apollo Multi-Asset Prime Securities, builds on the durability of the CLO format while enabling access to more diversified and higher quality credit assets that are risk managed daily. AMAPS has a greater number of underlying issuers offering greater diversification, a higher percentage of investment grade collateral, and operates with less leverage. The structure also features a much thicker single A tranche equivalent to the size of the triple A and double A tranches within a traditional BSL CLO. AMAPS offer approximately 75 basis points of excess spread relative to the blended investment grade spread of a CLO with significantly better characteristics. AMAPS is rated by leading agencies, and we expect future issuances will have public ratings.
Grant Kvalheim (CEO): We expect our AMAPS holdings to grow significantly and replace what we would have otherwise invested in CLOs on the margin. Turning to ABS. Our ABS portfolio is 98% investment grade with weighted average credit enhancement of 23%, providing significant protection against loan defaults in stress. Page 38 of the asset compendium highlights that 1/3 of our ABS portfolio is comprised of what we call high-grade capital solutions. These are secured asset-backed financings with investment-grade companies. We've disclosed the roster of individual assets and counterparties that Apollo has worked with. Examples include RWE, the European utility where we financed their minority investment in German grid infrastructure, and BP, where we financed two of their pipelines. Jim will walk you through Intel, the largest exposure that was recently repaid. Again, we like these assets.
Grant Kvalheim (CEO): We wish we had more of them, given the excess spread we're able to capture in financing IG borrowers. Talk a little bit about credit ratings. Strong credit ratings at the asset level are an output of a rigorous underwriting process that we undertake with Apollo. Athene was the first insurer to voluntarily disclose who rates our assets and provide detailed descriptions of the top 10 largest assets that are rated privately. From the total portfolio lens, 85% of Athene's ratable assets have at least one rating from S&P, Moody's, or Fitch, and about 70% carry two or more ratings or are rated by the NAIC SVO under prescribed criteria. Our analysis has found that even though each rating agency has expertise in different asset classes, there is not a statistically significant difference in the final rating across agencies.
Grant Kvalheim (CEO): At the beginning of the year, 13% of our asset portfolio carried a private letter rating, and 98% of these assets are investment grade. We expect the percentage of our assets utilizing PLRs to decline in the near term based on the anticipated conversion of certain AMAPS, as well as the repayment of certain high grade capital solutions financings that were privately rated. PLRs serve an important role in the private markets ecosystem. The difference between private and public ratings is not about quality, not about cost, not about speed. It is about how information is shared. Private letter ratings are subject to the same standards, the same surveillance, the same discipline as public ratings, but are distributed through secure, controlled channels. It makes sense where tailored structures and bespoke transactions might necessitate confidentiality, which is often at the borrower's request.
Grant Kvalheim (CEO): Now I'll hand it over to Jim to continue the discussion on our asset portfolio.
Jim Belardi (Executive Chairman and CIO): Yeah. Thanks, Grant, and hello, everyone. My comments this morning will focus on the other two presentations we published recently: the alternatives portfolio spotlight and affiliated investments. We invest in Alts to generate income and diffuse long-tail risk. Alts represent 5% of our total portfolio. We actively manage this allocation and can opportunistically increase it during attractive market cycles or reduce it when returns are less attractive. Our Alts portfolio is primarily comprised of investments in Apollo Aligned Alternatives or AAA and retirement services platforms such as Athora and Venerable. AAA represents approximately 80% of our Alts portfolio, up from 68% three years ago. Athene invests in AAA alongside third-party investors who own 55% of the fund. Historically, AAA has provided Athene with hybrid downside protected returns. Since inception, the AAA strategy has delivered net annual return to Athene of 12%.
Jim Belardi (Executive Chairman and CIO): Amid a weak equity market backdrop in Q1, our annualized alts return was 6%. This compares very positively with the MSCI, which was down 14%, and the S&P 500, which was down 17% on an annualized basis. Levered equity and private equity, which are strategies that most of the industry uses in their alts portfolios, would have performed even worse. The portfolio delivered the kind of differentiated performance it's designed to in Q1. Turning to affiliate assets. In certain cases, the attractive assets Apollo originates for Athene can be deemed affiliate or related party. While the labels sound technical, the concept is simple. As Athene's asset manager, Apollo is responsible for the construction, maintenance, and oversight of nearly 100% of Athene's assets, including the 73% of the portfolio they've originated for us.
Jim Belardi (Executive Chairman and CIO): These are some of our favorite assets because we have a deeper perspective on the underwriting and relative value. Page 16 of the affiliate asset deck illustrates how a subset of these originated assets are defined under statutory and GAAP accounting. Under statutory accounting, which the US insurance regulators favor, 17% of Athene's assets are deemed affiliated. Under GAAP accounting, 13% of our assets are labeled related party. We provide incremental detail on each within the presentation, as well as information on every individual asset that is affiliated but not related party. In most cases, these labels apply only because Apollo manages a legal entity that issued investment-grade debt secured by unaffiliated assets. Apollo does not own the underlying business, it manages the structure, which is what makes these assets secured.
Jim Belardi (Executive Chairman and CIO): Asset-backed financing, which is extended to investment-grade companies, provides us with additional control over the sourcing, selection, documentation, and servicing. A notable example within the portfolio is Intel. Intel has a $600 billion market cap and $45 billion of public investment-grade debt outstanding. Apollo is not invested in Intel equity, nor do they have a seat on Apollo's on Intel's board. In 2024, Apollo arranged an $11 billion investment-grade financing that was backed by a stake in Intel's semiconductor wafer fabrication facility in Ireland. Intel kept full ownership and operational control of the facility. Apollo secured a senior claim on the unaffiliated assets that were ring-fenced within a newly established entity. Athene bought $4.8 billion of this 6.5% yielding investment-grade debt that was rated by three leading rating agencies.
Jim Belardi (Executive Chairman and CIO): The investment was deemed affiliated because Apollo manages the entity. $5.5 billion of the investment went to nearly 45 third parties that were not required to deem the asset affiliated. Same security, same cash flows, different label. More recently, after strengthening its balance sheet with equity investments from the US government, Nvidia and SoftBank, Intel approached Apollo to repurchase the original investment. Apollo worked with Intel on a mutually acceptable solution. The deal was called in April, and Athene will recognize a that performed exactly the way it was structured to perform. Apollo has originated several similar structures in partnership with other large investment-grade companies. AB InBev, BP, Sony, Air France, KLM, AT&T, and RWE, one of Europe's largest utilities. Another example of a related party asset on our balance sheet is AAA, the Apollo managed fund I mentioned previously.
Jim Belardi (Executive Chairman and CIO): These holdings are deemed related party for Athene even though 55% of it is owned by third-party investors. It is important to understand that the affiliated and related party labels represent accounting conventions and not underlying characteristics of the credit. We included position level detail, including issuer, size, rating, number of ratings, and third-party participation in the presentation on this topic. We are the only US insurer that publishes this level of detail, and we are committed to keep raising the bar. Brian Weinstein will now provide some brief insights on the major trends Apollo is seeing across the IG marketplace.
Brian Weinstein (Partner and Head of Fixed Income Replacement Strategy): Thanks, Jim. Good morning to everyone on the call. I am pleased to join today to highlight two macro themes in investment-grade markets that we believe could benefit Athene. The massive investment-grade opportunity to finance the industrial renaissance and the benefits of being able to invest across public and private investment-grade credit. The dominant theme in credit markets today is this massive wave of investment in the industrial renaissance that must be financed. Hyperscalers and tech issuers are accessing the public investment-grade market in scale. As you can see on page 18 of Athene's quarterly fixed income deck, net corporate issuance in public markets now exceeds Treasury issuance. Looking ahead, the corporate index is going to start resembling the equity index as tech and hyperscaler names that historically did not issue much move into the top 10.
Brian Weinstein (Partner and Head of Fixed Income Replacement Strategy): Because so much of the issuance pipeline is concentrated in a handful of large growth sectors, value creation comes through differentiation. Evaluating credit through a combined public and private lens is essential. There are multiple ways to own the same credit. Although through Apollo, Athene has access across the full spectrum. A spread versus volatility framework across both markets reveals clear relative value. The analysis on page 19 of the same deck plots two views. Generic public index spreads, shown in blue circles, and Apollo's private forward pipeline, shown as green circles. The takeaway is stark. Apollo's originated private pipeline delivers over 200 basis points of pickup relative to the index, all for comparable or lower expected spread volatility. The value add comes from three sources. Apollo's ability to originate proprietary assets, its cross-market perspective on relative value, and how it constructs these assets that Athene buys.
Brian Weinstein (Partner and Head of Fixed Income Replacement Strategy): I will now turn it over to LJ, who will discuss Q1 liability origination and financial results.
LJ Tanguy (CFO): Thank you, Brian, good morning, everyone. As you heard so far today, Athene's financial position is excellent, and we are well-positioned for the opportunities ahead. Overall, we delivered a strong set of results in the first quarter that set a strong tone for a strong year. Organic volumes totaled $20 billion in the quarter, driven mainly by activities across retail, flow reinsurance, and funding agreements. Our new market business is gaining early momentum and generated $1 billion for the first time in the first quarter, led by stable value and structured settlement. We expect new markets to contribute more than $5 billion this year and ultimately to make up as much as half of Athene's new business. In the funding agreement channel, we demonstrated the diversity of our capabilities by issuing $8.5 billion in the first quarter across three of the sub-channels.
LJ Tanguy (CFO): Funding agreement backed notes, funding agreement backed repo, and FHLB. Importantly, we refrained from syndicated FABN offerings in favor of private transactions where we could achieve our target returns. In retail, we continue to see other carriers reaching for growth by writing new business at incredibly low spreads. We remain disciplined and did the business we wanted to do in Q1 and nothing more. In April, retail and flow reinsurance had a strong month, which is continuing in May. There have always been strong competitors in every aspect of the business that we operate in. Currently, there are several carriers who have seen what we've built and are trying to catch up. However, there's a deep moat around our business in the form of access to capital, proprietary asset origination, a steady source of low-cost liabilities, and an efficient cost structure.
LJ Tanguy (CFO): These advantages are hard to replicate and make us a very tough competitor. Turning to our financial performance. We generated Q1 spread-related earnings of $790 million that reflects strong organic growth, partially offset by lower alternative net investment income due to reduced contributions from origination platforms, including ATLAS. Our Alts return was unfavorably impacted by the recognition of an idiosyncratic impairment at ATLAS, as well as authorized capital raise for the PIC acquisition, which returned in a flatline quarter-over-quarter. Combination of these two items, which we do not expect to repeat, approximately 3.5 to 4 percentage points of annualized return in the quarter. Q1 net spread was 97 basis points versus the 120 basis points in the prior quarter.
LJ Tanguy (CFO): When considering our 11% return expectation on the alternatives portfolio, the net spread in the first quarter would have been 25 basis points higher. Adjusting for this, the net spread is in line with the 120 basis points to the 125 basis points outlook that we provided for the year. As Grant mentioned earlier, our balance sheet remains strong, reflecting our defensive positioning. As of mid-April, our cash balance was close to $40 billion, including treasuries and agencies. This gives us a significant amount of dry powder to capitalize on market disruption and the strong origination pipeline we see in front of us. We remain confident in our ability to deliver on our volume and spread targets. In closing, with 12,000 Americans reaching retirement age every day, the tailwind for our business is real.
LJ Tanguy (CFO): Demand for retirement income solutions continues to grow around the globe, and Athene remains well-positioned to serve this societal need. I'll now hand the call back to the operator and open it up for any questions. Thank you.
Operator (AI Assigned): Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To ensure that everyone receives a turn, we ask that you please limit yourself to 1 question and re-queue for additional questions. One moment, please, while we poll for questions. Thank you. Our first question is from Peter Troisi with Barclays.
Peter Troisi (Managing Director in the US Credit Research Group): Hi, good morning. Look, thanks for the new information on the investment portfolio that, you know, you already referenced on the call. I'd say, you know, one of the themes that comes out from the disclosures, at least from my perspective, is the, you know, your private investments have low LTVs. You know, obviously that de-risks the exposure that you take in the senior part of the structures. LTV, of course, is a function of the equity in those structures. I guess the question is how sustainable is the source of equity in the structured investments that you have on the balance sheet, number one? Number two, you know, generally, where does that equity come from?
Peter Troisi (Managing Director in the US Credit Research Group): Maybe you could even use AMAPS as an example, you know, 8% equity in that structure. You know, is that retained within the Apollo ecosystem? If so, you know, can you give us a sense as to where it is?
Grant Kvalheim (CEO): Yeah, thanks. This is Grant speaking, Peter. Apollo does have some exposure to the equity tranches, but it's primarily third-party investors.
Peter Troisi (Managing Director in the US Credit Research Group): Okay. That's helpful. My other one was just on the disclosures of affiliate investments, you know, 13% or 17%, depending on how you measure it. Do you have a, you know, a tolerance threshold or a cap for the amount of affiliated investments? I ask this because of what you mentioned in terms of, you know, the CLO portfolio rolling off, you know, could be replacing some of it with more attractive alternatives like AMAP. You know, that would basically reduce unaffiliated investments and increase affiliated. That's the context for the question.
Grant Kvalheim (CEO): Understood. A tolerance would imply that we actually think there's some form of excess risk in affiliated assets, and we think the opposite. As Jim was talking about, it's kind of a definitional question, either in terms of what's affiliated or related party from STAT or GAAP. We think the more important point is what's truly affiliated in the underlying, and that number is less than 2%. We're forced by definitional issues to report a headline number that is much higher than the actual related partiness of the underlying assets. We think that's the important risk point, that very few of the underlying assets are related.
Jim Belardi (Executive Chairman and CIO): Yeah, that's right. I would just add, as I said on the call, that the differentiation between affiliated and related party represent accounting conventions, not the underlying characteristics of the credit.
Operator (AI Assigned): Our next question is from Brett Gibson with JPMorgan.
Brett Gibson (Executive Director): Great. Thanks so much for the question. I wanted to ask first about competitiveness, you know, the competitive conditions in the retail channel. You know, what are you seeing there? Where do you expect that to go? Just related, as you launch the RILA product, like, how does that fit in a broader context? Where, you know, where could that go over time for you?
Grant Kvalheim (CEO): Sure. Thanks, Brett. Good morning. It's a competitive environment in retail, no question about it. It's most intense in the IMO channel, where you have, you know, the dozens of startups that that's the only place they can compete, both by technology limitations and ratings. They don't really have access to institutional distribution. For Athene, you know, close to 80% of our distribution is now through banks and broker-dealers where those startups cannot compete. At least they cannot as yet. Over time, maybe they get some access. I think we're picking our spots. We're picking our way through. You know, you heard from LJ about our ability to sort of retain spread. It is a competitive environment, no question about it. It's not just the startups.
Grant Kvalheim (CEO): Obviously, there's a lot of us that have been in the game for a much longer period of time, and we're all competitive people. I think you're seeing that in the institutional channels as well, but we feel good about our positioning. With respect to RILA, I think as you're aware, we're making a concerted effort there. We've got a long way to go. We reported on what our first quarter was, and I think it was up 75% over the run rate we had last year. We're continuing to see growth opportunity there. Came out with our latest version of the product, what we call our 3.0. We think it's extremely competitive, and it's got great feedback from distribution so far. We see RILA as a significant growth opportunity for us as we go through this year and years to come.
Operator (AI Assigned): Our next question is from Patrick Davitt with Autonomous Research.
Patrick Davitt (US Asset Managers, Senior Analyst): Hey, good morning, everyone. The strength in funding agreements was probably one of the biggest surprises in your Q1 results, at least for Apollo shareholders, given the spread dynamics in the quarter. Should we take the flow strength away from FABN you highlighted as a sign that this bucket can now be less volatile around your spread movements? Or was there something idiosyncratic about the Q1 business mix that is harder to repeat? Thank you.
Grant Kvalheim (CEO): Jim, you wanna speak to that?
Jim Belardi (Executive Chairman and CIO): Well, look, we're very proud of our innovation, you know, from the starting FABNs, even before Athene. Now within funding agreements, we have sub-channels. One of the primary ones, and maybe the primary one, is funding agreement-backed repo. Collateralized deals we do with banks. It's good business for the banks, so it's not like eating into our capacity that we may need at another time. It's good business for us. You know, we really engage in these deals when we can get tighter spreads, lower funding costs than we otherwise could do in the public, more or less unsecured market. You know, we got the public FABNs, we got the private FABRs with banks. We got the FHLB. We're one of the largest issuers there with RMBS and CMBS collateral backing it. Some direct funding agreements.
Jim Belardi (Executive Chairman and CIO): It's nice to be able to pivot across our platforms and also within certain channels, like funding agreements, we have a lot of flexibility as well. That gives us a lot of confidence that we'll meet our organic premium projections again this year like we have in the past.
Grant Kvalheim (CEO): I would just add one thing to that. Morning, Patrick. We get questions from investors about, you know, do we need to issue FABNs to pay off maturing FABNs. We absolutely do not. We have matched assets against our funding agreement program, so the asset cash flows pay off maturities. Then I guess one other addition I would say is, you know, Jim mentions the four different channels. The composition in any quarter can be quite different. Because of the collateral we had posted at the FHLB, we did more FHLB in Q1 than would be a run rate for the year. You can see the composition of what we do within the four sub-channels change quarter to quarter.
Operator (AI Assigned): Our next question is from Craig Siegenthaler with Bank of America.
Craig Siegenthaler (Managing Director): Thanks. Good morning, everyone. We've had some investor inbound on the differences between establishing reinsurance entities in Bermuda versus the Caymans. It's my understanding that with the Caymans you have less regulatory oversight, lower capital requirements, fewer reserve requirements, but that allows you to generate higher ROEs. I know you guys are set up in Bermuda, but what is the house view between the two? Because there's been more entities that have been set up in the Caymans recently.
Grant Kvalheim (CEO): I think we've been pretty clear publicly on our house view. We're concerned about the growth in the Cayman Islands. I think there's now $115 billion of US reserves that have been reinsured offshore to the Cayman Islands. We refer to the regulatory structure there as somewhat choose your own adventure, because there aren't stated capital requirements and you can negotiate with the regulator. What's also true is that it's pretty opaque. What's also true is it's not recognized as a reciprocal jurisdiction by the US, and it's not recognized as Solvency II equivalent by Europe, whereas Bermuda is recognized both as a reciprocal jurisdiction in the US and Solvency II equivalent in Bermuda. We've been pretty outspoken on this topic. I think it's a point of concern for regulators, and I think it'll get more focus this year as the year goes on.
Craig Siegenthaler (Managing Director): Thanks for taking my question. I have one more, but I'll hop back in the queue.
Operator (AI Assigned): Our next question is from Taylor Kramer with Aegon Asset Management.
Taylor Kramer (Analyst): Hey, thanks for the decks and the transparency. It is very helpful, and I appreciate you guys putting the time and effort into it. I guess the one question I'll ask here is on the high grade capital solutions. Grant, you talked about wanting kind of more of this, it does seem like you also include third-party participation in a lot of these deals. I guess two questions. One, if the average third party is 29%, does that imply Athene's balance sheet alone is the other 70%, or is it the other 70% is Athene and Apollo? I guess the second question is just why bring in third parties? What's the benefit of bringing them in? If you do wanna do more of these deals and have more of this exposure, why not just keep it all?
Grant Kvalheim (CEO): There can be too much of a good thing. The approach is when these deals are coming along is what's appropriate for Athene's balance sheet, what's appropriate elsewhere in the system at Apollo, and what's appropriate for third-party demand. Each deal kind of stands on its own. I don't think there's a cookie cutter of distribution. It's a function of size, credit quality, et cetera, tenor of the deal. You should expect that I mean, I think that's one of the great developments, healthy developments of Athene and Apollo is their ability to syndicate grows. They can speak for larger deals and solve bigger challenges for clients without overburdening the share that Athene needs to take. I think it's a very healthy development.
Grant Kvalheim (CEO): You know, in some of the deals, in the Ambev deal, which matured in the early part of this year, there were not only Athene in that deal, there were 17 other participants, most of whom were other insurance companies. It, it's a healthy, I think it's a healthy balance, and I think the participation by others in our industry kind of helps legitimize the price that we're buying at and the fact that this is kind of normal way business for an insurance company. I don't know if you'd add anything to that, Jim.
Jim Belardi (Executive Chairman and CIO): Yeah, I would. Yeah, thanks. Thanks, Grant, and thanks for the question, Taylor. You know, in the early stages of Athene with Apollo, we were growing so quickly that oftentimes we'd have to take the majority of any deal that Apollo would originate just to, you know, back the liabilities that we were bringing in. Credit to Apollo for building out their fixed income capabilities. They're the best in the business at it now. Early days, Athene had to take close to 100% of everything. Now it's 100% of nothing, 25% of everything. As Grant says, third-party participation is a healthy indicator, diffuses the risk.
Jim Belardi (Executive Chairman and CIO): I would just say that strategically, third-party capital is a huge part of our business model, whether it's the sidecars where we're the leader, syndicating deals to other third parties, insurance companies. We have a very fast-growing third-party insurance asset management business. It just is a better risk paradigm for us, and I think obviously good for the rating agents to see that too, as we push for AA rating. You'll continue to see third-party capital being a big part of our plan.
Taylor Kramer (Analyst): Great. Thanks.
Operator (AI Assigned): Our next question is from Joseph DeCarlo with MetLife Investment Management.
Joseph Di Carlo (Credit Research Analyst): Hi, all. Thanks for taking my question. Good morning. Looking at the GAAP statutory labeled related party affiliated assets on Athene's balance sheet, I think you noted it, I just missed it. Could you repeat how much of those are owned by third-party investors or insurers which don't have to label them that way?
Grant Kvalheim (CEO): I don't know that that's a number we've disclosed. Anybody else on the Athene side could speak to that. We have spoken on in particular instances about how many other parties are in it, but we haven't quantified.
Joseph Di Carlo (Credit Research Analyst): Okay.
Grant Kvalheim (CEO): the amount that's distributed to third-party insurance.
Joseph Di Carlo (Credit Research Analyst): Okay. Okay. Just related to that, does Athene have any benefit in owning those exposures versus the third parties?
Grant Kvalheim (CEO): We buy on the same basis.
Joseph Di Carlo (Credit Research Analyst): Okay. Gotcha. There's no, like, information flow or any other advantage that you guys would have over anybody else?
Grant Kvalheim (CEO): I mean.
Joseph Di Carlo (Credit Research Analyst): Makes sense.
Grant Kvalheim (CEO): To take it down a level, you know, if you think about Redding Ridge as a CLO manager, when we buy CLOs from Redding Ridge, we buy on the same basis as everybody else. Away from the asset itself, we do own a piece of Redding Ridge in our Alts portfolio, so that could be how we're slightly different than the people who buy it. On the actual security being distributed, we participate the same way as everyone else.
Joseph Di Carlo (Credit Research Analyst): Got it. I'm just thinking about, like, if there's any information flow that you may have that others don't. Like some sort of advantage in that respect.
Grant Kvalheim (CEO): I think we provide the same transparency on the deal that Athene receives.
Joseph Di Carlo (Credit Research Analyst): Yeah.
Grant Kvalheim (CEO): Maybe you should ask somebody who buys the same stuff that we buy if they feel they're in this information, advantage this information, but I don't believe that's the case.
Joseph Di Carlo (Credit Research Analyst): Got it. Okay.
LJ Tanguy (CFO): Can I just add one thing? I mean, if you look at the tag, the related party assets, $49 billion was related parties, 13% of the overall assets of Athene. Out of $49 billion, $29 billion is secured debt issued by entity that are managed by Apollo, but unaffiliated collateral and borrowers behind that, of which we have the triple-A, for instance. In the triple-A, we have very significant third-party investment. Triple-A is one. We have Wheels. We have all the platforms behind that. There's a very significant share of third-party money in those platforms.
Joseph Di Carlo (Credit Research Analyst): Got it. Okay. I guess just while I have you here, you put out a few slides on BDCs and how they relate to CLOs. How do you kind of look at the relative value between investments in corporate BDCs versus CLOs? Thanks.
Grant Kvalheim (CEO): You want to take that, Jim?
Jim Belardi (Executive Chairman and CIO): Yeah, sure. We've publicly said that BDC debt is safe, but I think a key point to keep in mind is this BDC debt has lower LTVs and more credit enhancement than AAA-rated CLOs. That's a pretty powerful statement. I think we find it attractive because of the spread difference versus other assets we can buy. On a, on a risk basis, I mean, we could go through it in more detail, but Hold on a second. Yeah. You know, we have covenants. We focus on privates because the public BDCs are riskier. We have covenants, a '40 Act covenant of maximum debt to equity of 2 times. It implies minimum equity of 33% and maximal LTV of 66%. What we have is relatively short duration.
Jim Belardi (Executive Chairman and CIO): You know, 85% is 5 years or shorter. The managers we select have an established track record and established relationships with Apollo asset groups, ABF, FIG, et cetera. We have zero exposure to any non-diversified sector funds. It's just very opportunistic. In the scheme of our balance sheet, you know, with the $36 billion of regulatory capital, it's a small allocation, but an allocation nonetheless that we're comfortable with.
Joseph Di Carlo (Credit Research Analyst): Great. Thanks for all the color, guys. Really appreciate it.
Operator (AI Assigned): Our next question is from Joseph Francois with RGA.
Joseph Francois (Senior Analyst): Yeah. Hi, good morning, and thanks for taking my question. I'll just step back a little bit. I think you touched on this in your comments, but just, based on the, I guess, the merger that's happening in the industry, what are your thoughts on competition going forward? Do you think others will look to do the same? I think one of the benefits I've read about that merger is that the cost structure is gonna be significantly better, make them a, I guess, a better competitor. Anyway, just wanted to hear your thoughts about that merger and just some of the implications going forward. Thank you.
Grant Kvalheim (CEO): Yeah, I don't know that we're partic-
Joseph Francois (Senior Analyst): Go ahead.
Grant Kvalheim (CEO): We don't have any insight. Obviously, we're not on the inside. It's a merger of two big companies. They've announced they're gonna try to take out $500 million of cost. That's a pretty big challenge. Just purely an opinion on my part. People here at Athene may disagree that are even on this call. I think if you're doing that, there's a potential that for a period of time, it might have you looking more inwardly than outwardly facing the marketplace. It's hard to do both at the same time. I make that statement based on when Athene took over Aviva back in 2012, 2013, that was certainly what we had to do.
Grant Kvalheim (CEO): We spent a couple of years being inwardly focused and getting everything lined up before we kind of refocused on being externally competitive and challenging and growing market share. They may have a different playbook in mind. They're both fair, they're both good competitors now. I'm sure they'll ultimately be successful. I think it's really hard for somebody who's not involved to make any kind of expert comment on what it's gonna mean and how it's gonna unfold for them.
Operator (AI Assigned): Our next question is from Ben Budis with Barclays.
Ben Budis (Analyst): Hi, good morning, and thank you for taking the question. Wanted to circle back to the retail side. I guess first, you mentioned that April and May were looking a little bit better. Just curious if there's any quantification you could put around that and anything that may be changing. More high level on the retail channel, just curious, you know, you guys talk a little bit about, you know, irrational pricing you're seeing in some places. At the same time, you've got things like AMAPS that are, you know, should provide you with a spread advantage as well as the cost advantage that you and Apollo talk about for some time.
Ben Budis (Analyst): With those things in mind, given the pipeline you see, given the unique access to, you know, origination, you know, how do you think about competing against and underwriting against some of that irrational pricing? You know, especially looking out over the next couple of months, given what's happening with spreads in the market. Thank you.
Grant Kvalheim (CEO): Yeah. I think things are competitive. I don't know how irrational they are. Everyone from their own chair thinks they're being rational. It's only people from another chair that think what they're doing is irrational. It's competitive. I like our chances. We have Apollo as our asset manager. They consistently provide us what we think is 30 to 40 basis points of excess spread per unit of risk. That's a significant advantage. We think we operate with the lowest cost base in the industry. I've said this before on the call, I think it's still relevant. We have fewer people working today at Athene, generating over $80 billion a year than Aviva USA did at the time we acquired them in the end of 2013 when they were originating $2.5 billion a year.
Grant Kvalheim (CEO): I think the combination of better assets, lower costs, I think we're very creative on the liability side. We've got a strong capital base, lower leverage. We think we got a great management team. We think those are all elements that give us sustained advantages and allow us to manage through periods of what may be, you know, extreme competition. Again, it's the, it's the breadth of our channels. Not only Jim talked about the four sub-channels that we have within the Funding Agreement Channel, but we also have our Flow Reinsurance Business. Within Retail, we've got institutional, you know, large banks, medium-sized banks, broker-dealers, IMOs. I think we have breadth of distribution in Retail that is really unmatched. We've got a healthy Flow Reinsurance Business. We're in the PRT space.
Grant Kvalheim (CEO): We kinda think we have the tools we need to manage through this environment. I think it was spoken on the Apollo call. We did $3.7 billion of retail in April. That level, that rate is continuing in May. We also did $2.6 billion of flow reinsurance. We think we'll have a strong flow reinsurance quarter. Again, I think we have the tools we need to manage through this environment. I think we have better tools than anybody that we compete against. I like our chances.
Ben Budis (Analyst): All right, great. Thank you for all that.
Operator (AI Assigned): Our next question is from Wilma Burdis with Raymond James.
Wilma Burdis (Director and Senior Equity Analyst): Hey, good morning. I just want to ask a little bit on PRTs. Didn't see a lot of activity in the quarter either for you guys or for across the industry. Just wanted to see if you could give a little color on what's happening there. Was the pipeline executed on in Q4 or are we still seeing some pressure from litigation? Thank you.
Grant Kvalheim (CEO): It's a very light calendar. I don't know if I ascribe that to litigation or not, but it is the case that it is a very light calendar for this quarter and even in the balance of the year. You know, on the litigation front, pretty much every case that is getting a ruling is dismissing the lawsuits. That's not the end of the story. The litigants turn around and file an appeal. That, that process is ongoing. I think given the way the cases have played out so far, industry participants are getting more and more comfortable, going ahead with deals. I can't really explain the lightness of the calendar, but it is a very light calendar. Because of that, it remains the case that pricing on deals getting done is very tight.
Wilma Burdis (Director and Senior Equity Analyst): Okay. Thank you.
Operator (AI Assigned): Our next question is from Tracy Benguigui with Wolfe Research.
Tracy Benguigui (Director and Senior Research Analyst): Thank you. Good morning. You have great disclosures. Very basic question. Since there's such a focus on fund finance like feeder funds, what piece of your $75 billion of insurance industry view a private credit are feeder funds? Specifically, I was thinking about looking at your $33.5 billion of private corps. Is that the right geography? It'll be great also to hear your thoughts on fund finance, like how that's evolved in terms of number of tranches, thickness, and expansion into new areas like NAV facilities.
Grant Kvalheim (CEO): Jim, you wanna take that?
Jim Belardi (Executive Chairman and CIO): Well, we don't have any feeder funds. First of all. On fund finance, I mean, I think what we have is low LTV. We're comfortable with it. I mean, it's not a big area for us, but we have some. But we're comfortable with it.
Grant Kvalheim (CEO): I just add that there's a page on fund finance in that asset compendium. It's page 41. It just shows what Jim's talking about. It's a relatively modest size of the overall portfolio with low LTVs.
Tracy Benguigui (Director and Senior Research Analyst): Okay, great.
Grant Kvalheim (CEO): page 42 actually lists, the exposures and gives some additional detail.
Tracy Benguigui (Director and Senior Research Analyst): Okay. How would you characterize the, this, private corp type of debt? Would that be just origination on individual loans?
Grant Kvalheim (CEO): Depending on the structure, some of these high-grade capital solutions end up as ABS deals, and some of them end up showing as private corps.
Tracy Benguigui (Director and Senior Research Analyst): Got it. Thank you.
Operator (AI Assigned): Our next question is from Patrick Davitt with Autonomous Research.
Patrick Davitt (US Asset Managers, Senior Analyst): Hey, thanks for the follow-up. Why will the Intel gain fall outside of SRE? If not in SRE, how will it flow through your results, and how should we think about it ultimately benefiting shareholders? Thank you.
Grant Kvalheim (CEO): Thanks, Patrick. LJ?
LJ Tanguy (CFO): Hi, Patrick. Yeah. Hi, Patrick, this is LJ. Very simple. The answer is that realized gains and losses don't flow into SRE. It's a GAAP accounting, the bifurcation between effectively what goes into GAAP versus what goes into SRE. SRE being non-GAAP. We exclude out of SRE what is realized gains and losses. In this case, it's realized, so it's not really part of SRE.
Patrick Davitt (US Asset Managers, Senior Analyst): How should we think about any incremental benefit? Because it is a pretty chunky amount, you know.
LJ Tanguy (CFO): Sure. Well, that's gonna obviously contribute to our excess equity, excess capital.
Patrick Davitt (US Asset Managers, Senior Analyst): Right. Yep.
LJ Tanguy (CFO): With key for us to give you.
Patrick Davitt (US Asset Managers, Senior Analyst): Okay. Thank you.
Jim Belardi (Executive Chairman and CIO): I mean, just to expand on that. I mean, we have excess capital, but when you have excess capital, it allows you flexibility, and we do these asset trades where we sell corporates, buy corporates to generate SRE. Sometimes the selling of the corporates will generate some losses. It's nice to have excess capital to allow us to be more aggressive in boosting SRE through these asset rotation trades. It all fits together.
Operator (AI Assigned): This concludes the Q&A portion of today's call. I will now return the floor to Jeanne Hess for any additional closing remarks.
Jeanne Hess (VP of External Relations): Thanks, Paul, and thanks everyone for the engagement this morning. If you have any follow-up questions regarding anything discussed on the call, please don't hesitate to reach out.
Operator (AI Assigned): This does conclude today's Athene's Fixed Income Investor Call. Please disconnect your lines at this time and have a wonderful day.
