Q2 2024 Earnings Summary
- Apollo is experiencing accelerated growth in its origination capabilities, leading to a significant increase in capital solutions fees. The firm is creating a new market in private investment-grade credit, with accelerating growth and a strong pipeline of opportunities, including internationally.
- Apollo's expansion in Asia is yielding substantial growth. With close to 200 employees on the ground across various countries and asset classes, the firm is making significant progress in Japan's private equity market, building out insurance capabilities, and scaling its credit business across Asia, taking advantage of the huge demand for long-dated credit capital.
- Apollo's private equity business is performing exceptionally well, allowing the firm to be on offense in the current market environment. They expect to have Fund X largely deployed by end of next year and to start fundraising for Fund XI, signaling confidence in continued growth and strong deployment pacing.
- Apollo is experiencing weakness and lumpiness in returns from its strategic investments, particularly in Catalina, which has been underperforming and is being wound down over the next two years. Additionally, strategic investments like Athora and Venerable have underperformed this year compared to prior periods, leading to earnings volatility. ( , )
- The company's earnings growth may face headwinds due to anticipated interest rate cuts. Apollo has not fully immunized its exposure to rate changes, and expected rate cuts could negatively impact their ability to achieve projected earnings growth. ( )
- Apollo's future growth may be constrained by limitations in origination capacity. The company's CEO acknowledged that origination capacity is a potential limitation to growth, indicating that if they cannot scale origination responsibly, it could restrict future growth prospects. ( )
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Strategic Investment Weakness
Q: What's causing weakness in strategic investments?
A: Marc Rowan explained that while Venerable and Athora have been strong performers over time, with returns around 16-20% and mid-teens respectively, they've shown recent volatility. Catalina, however, has been weak and is being wound down over the next two years. This transition reflects a strategic shift away from the P&C closeout business. -
Private Equity Expansion
Q: Outlook for private equity and Fund XI?
A: Marc Rowan and Scott Kleinman highlighted that the current market is ideal for Apollo's private equity deployment. Fund X is expected to be largely invested by the end of next year, with fundraising for Fund XI commencing thereafter. They anticipate continued strong performance without facing the headwinds affecting the broader private equity industry. -
Intel Transaction Impact
Q: Details on the Intel transaction's impact?
A: Scott Kleinman described the $11 billion Intel transaction as consistent with Apollo's strategy of providing large-scale capital solutions. While larger than prior deals, it showcases Apollo's ability to leverage its resources, with around 50 team members involved. Such transactions are becoming more common due to significant capital needs in digital infrastructure and energy transition. -
Origination Pipeline Growth
Q: Color on originations and pipeline?
A: Marc Rowan and Scott Kleinman emphasized the scaling of Apollo's origination capabilities across geographies and categories. Originations totaled $50 billion in the quarter, indicating accelerating growth. They are creating a new market in private capital solutions, with opportunities expanding globally. -
Asia Growth Opportunities
Q: Updates on Asia initiatives, especially Japan?
A: Scott Kleinman reported substantial growth in Asia, with nearly 200 employees across multiple countries. In Japan, Apollo has executed four or five private equity transactions recently. They're also expanding in India and Australia, building insurance and credit capabilities across the region. -
Alternative Investment Income Outlook
Q: Clarify outlook on alternative net investment income?
A: Marc Rowan affirmed the expectation of double-digit growth over 2024 results. He noted that invested alts inside AAA posted just over 10% over the last twelve months, including cash yet to be invested. Strategic investments like Athora and Venerable have seen quarter-to-quarter lumpiness but have historically delivered mid-teens returns. -
Liability Outflows Trend
Q: Will liability outflows remain elevated?
A: Marc Rowan and Martin Kelly clarified that there is no deviation from the expected schedule. They anticipate remaining on track, with outflows aligning with published future maturities. -
New Product Partnerships
Q: Update on new product launches with partners?
A: Marc Rowan confirmed that Apollo is on track to launch the first product in Q3 and hopes the second will be in Q4. These partnerships aim to expand Apollo's reach without compromising origination capacity. -
Capital Markets Fees Outlook
Q: Expectations for capital markets fees into 2025?
A: Martin Kelly stated that the visible pipeline extends about two quarters ahead, and they expect the business to continue ramping. They're enthusiastic about future growth driven by an ecosystem aligning supply with demand.