1Q 2023 Earnings Transcript

Apollo Global Management, Inc.

First Quarter 2023 Earnings

May 9, 2023

Presenters

Marc Rowan, CEO

Scott Kleinman, Co-President

Martin Kelly, CFO

Noah Gunn, Global Head, IR

Q&A Participants

Alex Blostein - Goldman Sachs

Patrick Davitt - Autonomous Research

Glenn Schorr - Evercore

Rufus Hone - BMO Capital Markets

Michael Cyprys - Morgan Stanley

Michael Brown - KBW

Craig Siegenthaler - Bank of America

Brian Bedell - Deutsche Bank

Finian O'Shea - Wells Fargo

Ben Budish - Barclays

Adam Beatty - UBS

Operator

Good morning and welcome to Apollo Global Management's First Quarter 2023 Earnings Conference Call. During today's discussion, all callers will be placed in listen only mode, and following management's prepared remarks, the conference call will be opened for questions. Please limit yourself to one question and then rejoin the queue. This conference call is being recorded.

This call may contain forward looking statements and projections which do not guarantee future events or performance. Please refer to Apollo's most recent SEC filings for risk factors related to these statements. Apollo will be discussing certain non-GAAP measures during this conference which management believes are relevant in assessing the financial performance of the business. These non- GAAP measures are reconciled to GAAP figures and Apollo's earnings presentation which is available on the company's website. Please also note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any Apollo fund.

I will now tuthe conference over to Noah Gunn, Global Head of Investor Relations.

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Noah Gunn

Great. Thanks, Donna. And welcome again everyone to our call this morning. Earlier we published our earnings release and financial supplement on the investor relations portion of our website.

First quarter results were strong and outperformed on a number of fronts which we believe few others can say amid this backdrop of market volatility. We'll discuss further over the course of the call, but it's quite apparent that our purchase price matters approach is shining, allowing us to be very front footed in executing our strategic objectives. The proof is in the numbers. We reported record quarterly FRE of 397 million or $0.67 per share, and normalized SRE of $811 million or $1.36 per share, which together increased a remarkable 45% year-over-year. This powerful combination of fee and spread related earnings, coupled with principal investing income, drove normalized adjusted net income of $942 million or $1.58 per share in the first quarter, up 18% year-over-year, which is indicative of the type of consistent, compound earnings growth we believe we can deliver to our shareholders.

Joining me this morning to discuss our results in further detail are Marc Rowan, CEO; Scott Kleinman, Co-President; and Martin Kelly, CFO. And with that, I'll tuthe call over to Marc.

Marc Rowan

Thank you, Noah. And good morning to all. Noah started down the path that I'd like to pick up on and really talk about the two different bets we have made versus our industry. The first is an investment style bet. If you look across our approximately 600 billion of AUM, you never have to worry about what strategy we're following. Every strategy is purchase price matters. Purchase price matters is grounded in facts. It's grounded in cash flow. It's grounded in business prospects.

In the equity business, which Scott will talk about, it manifests itself in a maniacal focus on low purchase price for the quality of business that we are buying. In the credit market, it manifests itself at being top of the capital structure, senior secured, and floating rate. If I tick through just this quarter's results, and how purchase price matters plays into this amid this market dislocation and volatility, in our credit business, corporate credit up 3%, structured credit up 3%, direct origination up 5%. I hosted a webcast earlier this month for ADS and Earl Hunt. 98% of the book senior secured floating rate originated in '22 and in '23, great years in which to originate.

If I tuto our equity business, private equity up 5%, European non-performing loans through EPF up 2%. Literally across the board, against a backdrop of instability, purchase price matters has paid off. It is really hard not to chase the hot dot of momentum and liquidity, especially when it goes on for so long against the backdrop of money printing. But that in fact is what we did and why we are where we are today.

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The second bet I'd like to talk about goes back to our investor day in October 2021. We told you at the time that we were going to make a different bet than almost everyone else in our industry. And if you look across our industry, some have bet on real estate equity, some have bet on infrastructure, some have bet on subordinated debt and BDCs, some have bet on growth. None of these in of themselves are bad strategies, and in fact, some of our competitors execute against these strategies quite well.

But these are not our strategies. The bet we told you at the time that we were making, if you looked at the vast majority of our AUM growth, was on fixed income replacement. Think of that as private investment grade. We made a really big push into private IG. Different than private credit is how private credit is normally talked about, which normally means levered loans and below investment grade. We are the investment grade version.

This quarter, our yield AUM was some 440 billion. And while that sounds quite large, and it is the largest of the private credit businesses, this is against the backdrop of a 40 trillion market that we estimate that we would otherwise be looking at. We are simply not significant in the market. And this is the best news, we are large, but not significant. That's a position I like to work from.

Think about who we compete with and who we don't compete with. The press likes to frame private credit as an enemy of the banking system. In fact, if we think about our businesses, and how we've positioned our private IG franchise, we want what the banks don't want and vice versa. So let me articulate that very clearly. Because I think it is important that it come out.

At the end of the day, we want the asset. We actually don't want the client because we are not prepared to cross sell the client anything. We can't sell them equity, we can't sell them M&A, we can't sell them FX, derivatives, hedging, payments, or credit cards. Ironically, for much of the banking system, the banking system wants the client, but not the asset. Particularly in a world of market stress, where many banks, particularly regional banks, are rethinking their strategy, I like where we sit in the food chain, I like what we're focused on, and I believe we are very well positioned.

In a time of market instability, against a backdrop of a good entry point for credit at higher rates, the world is looking for safe yield. Insurance companies, including our own insurance company, Athene and Athora, need safe yield. Competitive insurance companies need safe yield. Japanese banks need safe yield. Pension funds endowments, sovereign wealth funds need safe yield. Safe yield is as I suggested a potential replacement for fixed income, particularly publicly traded IG. Again, I like the hand we're playing and I like the bet we've made.

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