Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Apollo Global Management Inc (APO, Financial) reported record quarterly Fee-Related Earnings (FRE) of $516 million, or $0.84 per share, and Spread-Related Earnings (SRE) of $710 million, or $1.15 per share.
- The company achieved adjusted net income of $1 billion, or $1.64 per share, showcasing strong financial performance.
- Apollo's private equity segment announced three significant transactions in the past 30 days, indicating robust deal activity.
- The hybrid equity vehicle, Triple-A, delivered a 10% return over the last 12 months and has shown positive returns for 16 consecutive quarters.
- The credit segment, the largest franchise, reported impressive performance with various vehicles achieving double-digit returns over the past 12 months.
Negative Points
- The roll-off of exceptionally profitable business put on during the peak of COVID impacted profitability for the quarter and is expected to affect the next quarter as well.
- The company faced headwinds in its strategic investments, particularly with Catalina, which has been underperforming.
- The bid-ask spread between buyers and sellers in the private equity market is persisting, hampering investment activity at the industry level.
- Athene's profitability was impacted by strategic hedging activities, which are expected to be a headwind to earnings growth this year.
- The company anticipates mid-single-digit FRE growth for the year, which is lower than the double-digit growth seen in previous years.
Q & A Highlights
Q: Can you clarify your outlook for the second half of 2024 and the expected growth in 2025?
A: We anticipate growing double digits over the results for 2024. The alternatives portfolio, particularly triple-A, posted an LTM return of around 10%, including a substantial amount of cash yet to be invested. Strategic investments like Catalina and FWD have not performed well, but venerable has been strong, albeit with some lumpiness. We are also considering the impact of potential rate cuts in our guidance.
Q: Can you elaborate on the opportunities for expanding Apollo's private equity capabilities?
A: Private equity is a traditional business for us, and we are well-positioned to capitalize on current market conditions. We expect Fund 10 to be largely deployed by the end of next year, and we will likely kick off fundraising for Fund 11. Additionally, we see significant opportunities in fixed income replacement and private investment grade credit.
Q: What is the status of your partnership initiatives similar to KKR Capital Group?
A: We are on track to launch the first product in Q3 and the second in Q4. These partnerships are additive to our franchise and help scale our origination capabilities. We are focused on not just distributing to third parties but also maintaining full fees for high-quality assets.
Q: Can you provide more details on the strategic investments in your alternatives portfolio, particularly the sources of weakness?
A: Venerable has been an extraordinarily profitable investment over time, despite some quarterly volatility. Catalina has been weak and is transitioning from P&C close-out business to a sidecar for Athene. This transition will take about two years. Overall, the strategic stakes are performing as expected, with the exception of Catalina.
Q: How do you see the opportunity set unfolding in Asia, particularly in Japan?
A: Our Asia business is growing substantially, with close to 200 employees across various countries. In Japan, we've executed several transactions and see significant opportunities in private equity, insurance, and credit. We are also scaling our insurance capabilities and credit opportunities across Asia.
Q: Can you provide more details on the Intel transaction and its impact on your P&L?
A: The Intel transaction involved around 50 people across the firm and took several months to complete. It is consistent with our approach to hybrid capital solutions. While it was a large transaction, we expect more of such scale or even larger in the future. The transaction contributed to our record returns and will continue to impact our results positively.
Q: Can you give more color on the step-up in originations and the non-US origination opportunity?
A: We have been scaling our origination capabilities in breadth, geography, and category. This has led to a significant increase in originations, including non-US opportunities. Our ACS P&L reflects hundreds of transactions, and we continue to invest in both origination and ACS to drive growth.
Q: What is your outlook for capital markets fees in 2025?
A: We have a visible pipeline of business about two quarters ahead, and we expect the business to continue ramping. The ecosystem we have built allows us to align supply with demand effectively. We are very enthusiastic about the growth prospects for our capital markets fees.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
