Q1 2024 Earnings Summary
- Apollo plans to double its business over the next five years, expanding from a $670 billion asset manager, leveraging robust growth in private markets and its strong focus on origination and culture.
- Strong revenue momentum in Apollo's Capital Solutions business is driving sustainable growth, supported by its integrated 'flywheel' of origination, distribution, and client engagement. This positions the firm to capitalize on opportunities arising from trends like the Infrastructure Act, the CHIPS Act, and growth in EVs.
- Apollo is experiencing robust third-party fundraising momentum, with confidence in meeting its full-year target of $50 billion in fundraising. This growth is spread across multiple products, including yield, hybrid, and equity businesses, and is achieved without fee compression, indicating strong demand for Apollo's offerings.
- Potential decline in Pension Risk Transfer (PRT) volumes due to shareholder lawsuits, as management expects the lawsuits to "chill PRT volume across the industry," which could negatively impact Apollo's Retirement Services business.
- Growth constraints due to origination capacity and cautious approach, with management acknowledging that "we are limited... by origination and by culture," potentially limiting earnings growth despite market opportunities.
- Current unattractive spreads in PRT leading to reduced activity, as the company observed that "spreads in PRT are not all that attractive," and therefore anticipates a "decline in expected PRT volume this year."
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Earnings Growth Expectations
Q: How do you reconcile rapid ecosystem growth with earnings projections?
A: Marc Rowan explained they focus on sustainable, predictable 15% to 20% long-term growth in the Asset Management business and low double-digit growth in Spread-Related Earnings. They aim to double the business over the next five years by emphasizing origination and culture, ensuring excess return per unit of risk rather than merely accumulating capital and investing it poorly. This balanced approach supports earnings growth without relying on elevated expenses. -
Third-Party Fundraising Outlook
Q: What's the outlook for third-party fundraising and fee rates?
A: James Zelter stated they are comfortable with achieving their full-year fundraising target of $50 billion, with strong traction across all channels, particularly in yield businesses and hybrid and equity products like AAA and infrastructure. They are not seeing fee compression; investors continue to seek their products despite tighter high-yield spreads. -
Impact of Lawsuits on PRT Business
Q: Will shareholder lawsuits affect Athene's PRT transactions?
A: Marc Rowan noted that despite recent lawsuits potentially chilling PRT volume across the industry, this is not an Athene-specific issue. He mentioned that PRT spreads are currently not attractive, and a decline in PRT volume might not be a bad thing for them, as they focus on creating value through wide spreads. -
Atlas-Mass Mutual Partnership Impact
Q: How will the Mass Mutual partnership affect Atlas's origination and Apollo's earnings?
A: Marc Rowan highlighted that partnering with high-quality firms like Mass Mutual aligns with their strategy of having 25% of everything and 100% of nothing. James Zelter added that Atlas, as a finance lender to finance companies, will benefit from the partnership through enhanced equity and debt financing, separately managed accounts (SMAs), and partnerships. This collaboration ties into their ABF institutional fund and the ABC platform, supporting growth in origination volumes and earnings. -
Apollo Asset-Backed Company Details
Q: Can you elaborate on the new Apollo Asset-Backed Company?
A: James Zelter described the Apollo Asset-Backed Company (ABC) as their flagship product in asset-backed finance for global wealth channels, offering diversification beyond sponsor buyout activity. It focuses on a majority of investment-grade risk and aims for high single-digit to low double-digit returns without using leverage, leveraging their sourcing capabilities instead. Marc Rowan added they apply the same philosophy as with ADS, focusing on acceptable returns and excess return per unit of risk. -
Capital Solutions Growth Outlook
Q: What's the updated outlook on capital solutions growth?
A: James Zelter expressed excitement about their capital solutions business, which enhances origination and distribution capabilities. They see momentum in areas like asset-based solutions, including solar financing, and are positioned to assist investment-grade companies with massive growth initiatives. They expect these trends to continue expanding their existing business and drive revenue growth. -
Fee Structures and Noncompensation Expenses
Q: Are you shifting from placement fees to revenue share models?
A: Martin Kelly explained that the higher noncompensation expenses in Q1, due to increased placement fees, represent the new normal going forward and are consistent with their guidance of 100 basis points of margin expansion for the year. He noted there are various fee structures, including front placement fees and trailer fees, depending on the distributor and product, with no real change in their overall approach. -
Managing Platforms for Growth Goals
Q: How are you managing platforms to achieve growth targets?
A: James Zelter stated they manage their top platforms—such as MidCap, Atlas, PK, and Wheels—as a portfolio, optimizing financing and bringing in third-party investments through SMAs and equity participation. This integrated approach gives them confidence to achieve and potentially exceed their $200 billion-plus long-term origination targets, supporting the growth goals of both Apollo and Athene.