Apollo expects to pull wealthy investors into alternatives with new annuity, investment vehicle

Apollo Global Management plans to push further into serving the high-net-worth retirement services market with its alternative investment platforms as it develops more relationships with retailers, according to executives in the company’s first-quarter earnings conference call on Tuesday.

It’s part of the alternative asset company’s mission to get investors, particularly wealthy ones, to embrace alternative investments, according to CEO Marc Rowan.

“We've articulated previously and I certainly have been quoted publicly stating that over the next five years, I expect that high-net-worth investors will be better than 50% allocated to alternatives,” Rowan said during the question-and-answer section of the call. “That always elicits certainly a look because it is not where the people are today.”

Rowan defined alternatives as instruments other than publicly traded stocks and bonds.

“I believe alternatives go from double-A to equity,” Rowan said. “So when I say 50% allocated to alternatives, I do not believe they will be allocated to private equity or venture capital or risk, but to alternatives in the newer definition that I've suggested.”

The company introduced two vehicles last year to drive that acceptance of alternatives, Apollo Aligned Alternatives (AAA) and Altitude, an annuity chassis offered by the company’s carrier, Athene.

Co-President Scott Kleinman said although Apollo expects AAA to make as much as $1 billion of retail business per quarter by the end of the year, that is a fraction of what it might become.

“One of the surprises we found is that this is more attractive to certain institutional investors than we than we would have expected when we created the product.” Kleinman said. “This could very well be Apollo's largest product, and I do really believe that over the next few years, this could be a product [with] $20-$30-plus billion dollars.”

Athene Altitude annuity touted

Although advisors haven’t heard much about the Athene Altitude annuity, they are likely to hear a lot more about it over the next few years as the tax-advantaged chassis for alternative investments hits wider distribution.

“Today, you can buy from Apollo investment grade-only yield, you can buy total return, you can buy opportunistic credit, you can buy REIT, you can buy BDC [business development companies], you can buy our credit strategies hedge fund, and you can buy triple-A, all wrapped in an Altitude annuity for an excess cost of 30 basis points with no further restrictions,” Rowan said.

The products are just the vehicles for alternative investments, but the company and others will have to fill in the details to establish a comfort level for investors to use them, Rowan said.
The annuity industry has traditionally targeted the middle market and not as much wealthy investors. Part of that drag is the lack of acceptance among investment advisors.

“We as an industry are in the early stages of addressing the needs of high-net-worth and retail investors versus institutions,” Rowan said. “The whole growth of alternatives is about education. And retail investors and their financial advisors first need to understand the products. … We are doing our part and other firms in the industry are responsibly doing their part.”

Athene Altitude is being sold mostly to high-net-worth individuals and family offices, but the company expects it to get broader distribution later this year.

“You should expect as new products come online, we will continue to build out the family of products under the Altitude brand,” Rowan said.

Fee income up

Apollo did well with management fees and investment income in the quarter, although its adjusted net income fell about 8% from $915 million in the first quarter of 2022 to $845 million this year. Observers attributed the decline to a drop in deal making in the quarter.

“Inflows were $12 billion in the first quarter, roughly about the same as 2022,” Rowan said during the call. “I see this a little bit as the golden age of annuities. Consumers simply prefer 5% to 2%. To me, it's not more complicated than that.”

The CEO also reassured listeners that the panic in the banking sector has not bled into the annuity business.

“Given the activity we've seen in the banking sector, we've received lots of questions about how this impacts, or in fact does not impact, the retirement services industry,” Rowan said. “Let me start with the punchline. This does not impact the retirement services industry. People who on annuities are saving for retirement. This is not money they think is accessible. When they do surrender or move it, they're typically moving to another policy. Otherwise, they incur tax burden.”

Rowan said the company has not seen an increase in surrenders or even inquiries from investors on the issue. He said the company is well-positioned to build on the foundation it laid last year.
“The simple shorthand for what we intend to do in 2023 is ‘no new toys,’” Rowan said. “The bar is extremely high to do something new given the opportunity in front of us. The three original growth drivers – original origination, capital solutions and global wealth – are well on track.”

 

Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].

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