Good morning, and welcome to Apollo Global Management’s 2014 Third Quarter Earnings Conference Call. During today's presentation, all callers will be in a listen-only mode. Following management's prepared remarks, the conference call will be opened up for your questions. This conference call is being recorded. I would now like to turn the call over to Gary Stein, Head of Corporate Communications. Please go ahead.

Thanks, operator and welcome, everyone. Joining me today from Apollo are Josh Harris, Co-Founder and Senior Managing Director; and Martin Kelly, Chief Financial Officer. Earlier this morning, Apollo reported non-GAAP, after-tax economic net income of $0.12 per share and distributable earnings to common and equivalent holders of $0.77 per share. Also we declared a cash distribution of $0.73 per share for the third quarter of 2014, representing a 95% payout ratio. As a reminder, today's conference call may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. We don't undertake to update our forward-looking statements or projections unless required by law. We will also be discussing certain non-GAAP measures on this call, such as economic net income and distributable earnings, which are reconciled to our GAAP net income attributable to Class A shareholders. These reconciliations are included in our third quarter earnings press release, which is available in the Investor Relations section of our website. Please also refer to our most recent 10-K for additional information on non-GAAP measures and risk factors relating to our business. As a reminder, this conference call is copyrighted property and may not be duplicated, reproduced or rebroadcast without our consent. If you have any questions about any information in the release or on this call, please feel free to follow up with me or Noah Gunn after the call. With that, I'd like to turn the call over to Josh Harris, Co-Founder and Senior Managing Director of Apollo Global Management.

Thanks, Gary. This morning, I’d like to touch on a few topics including our current views of the market environment given the recent volatility. But first, I’d like to briefly summarize some of the highlights from our third quarter results with a few key takeaways. We remain active in monetizing our portfolio and delivering significant returns to our investors. The funds we manage generated a total distributions of $4.6 billion during the third quarter which resulted in nearly a $0.5 billion gross realized carry. The private equity transactions behind the majority of that activity were executed at a weighted average multiples invested capital of nearly 4x, reinforcing our best-in-class track record in private equity. In addition, our management business ENI of a $131 million during the quarter was more than double the amount of a year ago. Strong realized gains in PE and solid performance in our management business were the primary drivers of our $0.73 per share cash distribution in the quarter. Our fund raising efforts, our ability to identify and originate new business opportunities and our solid investment performance continue to drive our business forward. To put some numbers around this point, our AUM or assets under management are up 45% year-on-year to $164 billion, while fee-paying AUM is up 63% to $130 billion. Contributing to our AUM growth was nearly $3 billion of capital that was raised during the quarter. Finally, we remain active in deploying capital in a variety of differentiated investment opportunities. Although we continue to remain net sellers in the current environment, we continue to find what we believe are well priced investments. Across our platform, we deployed more than $2 billion in the third quarter and the pipeline of committed, but unfunded deals in private equity stood at $1.7 billion at September 30.…

Thanks Josh. Starting with private equity, the funds maintained a strong pace of realization activity in the third quarter, which resulted in aggregated distributions of $2.8 billion of capital to our fund investors. In the process, we earned $370 million of realized carry in private equity, which was a primary driver of our $0.73 per share cash distribution this quarter. Specifically, these realizations were driven by numerous transactions, including secondary and/or block share sales of our fund remaining interest in Berry Plastics, as well as some of our funds interest in Athlon Energy, Rexnord and Sprouts Farmers Market. Subsequent to these transactions, the funds we managed held the following: Funds VI held 12.9 million shares of Rexnord and 27 million shares of Sprouts. And Fund VII held 25.2 million shares of Athlon at the end of the quarter before giving effect to the announced pending sales to Encana. Touching on capital raising, our first natural resource respond is over 70% invested for committed as of September 30th with strong performance to-date. And we expect to launch fund raising for a successor fund early next year. Regarding capital deployment within our private equity funds, activity increased in the third quarter largely due to the closing of Jupiter Resources’ purchase of assets from Encana. Turning briefly to our credit business. At the end of the third quarter, we had a $108 billion of AUM in credit, which includes $48 billion related to Athene, $25 billion in U.S. performing credit, $15 million in structured credit, $11 billion an opportunistic credit and $9 billion in European credit strategies. During the third quarter, fund raising activity of $2.4 billion within credit was led by $2 billion of inflows for our third credit opportunity fund. This brings total fund commitments to $3.4 billion reaching its hard…

Thanks, Gary. And good morning everyone again. Starting with our Management Business. For the third quarter, Apollo's Management Business earned $131 million of ENI exhibiting strong year-over-year growth. Looking quarter-over-quarter, rising Management Business revenues were driven by higher advisory and transaction fees, which increased due to deployment related fees. In terms of Management Business expenses, the modest quarter-over-quarter increase was driven by $6.5 million of placement fees related to the final closing of quarter three and a true up of interest expense to reflect the fourth quarter impact around notes offering in May. The modest loss in other income within the Management Business was driven by adverse foreign exchange movements of approximately $5 million, which resulted primarily from the depreciation in the Euro and British Pound. We believe our Management Business margins are healthy and as we achieve an increasing amount of scale, we expect our margins to benefit overtime. That said, we will continue to strategically invest in the business by adding talent and capabilities to facilitate additional growth. Given the ongoing hiring activity across the fund, which included a 6% growth in headcount during the third quarter, we expect compensation expense to continue to increase in the near-term including in Q4 given the timing of bonus accruals for new hires condensed over a shorter timeframe. Turning to our Incentive Business. In private equity, our traditional private equity funds depreciated by approximately 2% during the third quarter, which was driven by approximately 2% depreciation in publicly traded equity portfolio holdings through [March] and publicly traded debt holdings and approximately 1% appreciation in private holdings. In credit, excluding Athene's non-subsidized assets, our funds continue to perform well with most pockets of our business generating modest positive gross returns during the quarter in the phase of the more challenging backdrop that…

Thank you. (Operator Instructions). And your first question comes from Bill Katz of Citi.

Hi, it's Steve Fullerton filling in for Bill. First question, just the media seemingly has picked up number of articles talking about possible regulatory scrutiny picking up on the industry. Can you just speak about that broadly and specifically on the IRR issue?

Sure Steve. It's Martin. So, we’re aware of the article, we're not aware of any investigation relating to the IRR matter. We do include GP capital in our net IRR calculations. And the reason we do that is because we calculate IRRs at the fund level and not at the investor level. We are very transparent in our disclosures to our investors. And if you look at the impact of including versus not, the GP capital and the calculation, it’s small. And if you take Fund VII in our case, the net IRR life to-date would be approximately 20 basis points different. So, we believe our disclosures are transparent and consistent with what we’ve done previously and we believe is good practice.

Yes. I would just add that there is no industry standard and I think the focus of the article is really around whether funds are transparent about how they calculate their net IRRs as opposed to whether it is appropriate or not in terms of how calculations are done. And again, there is no industry standard in that regard.

Okay. And I appreciate the commentary on dry powder and private equity and credit. Can you just talk about maybe geographically where you see dislocations given recent volatility to invest?

Yes. I’d say that, Josh has said that clearly in Europe we’re seeing dislocation relative to softening of the economy over there and then certainly in the big downtick in oil prices have created some opportunity in our credit business. Those would be the two and then also the strengthening of the dollar has hurt basic materials and natural resources away from oil. And so I’d say so those are the sort of three areas that you stand out. But anytime you get volatility, you’re going to get more opportunity across the board, but those would be the areas that I would highlight.

Great. Thank you very much.

Thank you. Your next question comes from Patrick Davitt of Autonomous.

Hi guys, thank you. My only question is around the disclosure. I'm curious why you decided to take out the cost in fair value disclosure?

I think generally speaking, we thought there is enough disclosure in the release to help people understand obviously where the funds are, we've got a lot of disclosure in the investment record table. And I think we generally felt that there was -- it was causing more confusion in terms of the cost versus fair value. If you would have notice that with respect to credit for example that the cost and fair value only represented a small portion of the total credit business. So, we felt that it wasn't necessary giving you a full view of the credit business. And therefore, felt that it's best to just to refer to investment record table and the other disclosures in the release.

And I’d also just put that in the context of other disclosures that we've added in the last three or four quarters, which we think are more useful presentations of our results.

Okay. Thank you.

Thank you. Your next question comes from Michael Carrier of Bank of America.

Thanks, guys. First question, just on the growth outlook. And I guess it depends on what you hope for because you get to pull back. You can deploy more capital, markets remained strong and the distributions continue. So, assuming sort of steady-state environment, when you think over the next one to two years given that your portfolio is the returns are there and so you could continue to distribute. How should we be thinking about kind of the net growth of the business? So, fund raising, less distributions, obviously year-over-year the growth rate has been great. But more recently, the distributions have been strong at (inaudible) just wanted to get your sense, when you're managing the business, how you think about that over the next couple of years?

Yes. So, the way I would think about it is we organically are growing our credit business really just through all the opportunities that are being created by just the pullback of the banking sector globally. And we would expect to be able to grow our credit business organically double-digit. And what I’ve said in the past is that, in the background we have what we call our R&D lab. And we’re always working on new things that might stair step the firm. The latest one those was Athene, which brought on $60 billion of assets over few years. One before that was similar level trades we did during the financial crisis. So, it’s really hard to predict when the next opportunity will come, but that obviously would stair step the growth of the firm. Then you have tuck-in acquisitions and again we’ve got two of those and continue to work on some others. So that -- and then private equity obviously as we’ve discussed, the large flagship fund has recently been raised. You have small incremental funds that are being raised couple of which we mentioned on this call with all that natural resources, the next fund in natural resources and the next fund in real estate. But that’s likely to be relatively incremental vis-à-vis the size of the private equity method. So, that’s the way I would describe it overall.

Okay. That’s helpful. And then, just on two of the areas that you mentioned both Europe and then in the energy sector. Just when you’re making those investments, I guess just given some of the uncertainty, particularly on the European economy and just the price of energy, when you're making those investments, how do you gauge like the downside or protect the downside? Because, obviously on the European side, if we are stagnant for a few years, there is some things that you guys can do on the portfolio company side, but just trying to understand how you go through that thought process. And same thing with energy, if the dynamics are changing versus the last 30 years because of production in the U.S., how do you can kind of factor that in, in terms of the investment outlook?

Yes, I'll start with the energy and then I'll get to Europe. I'd say that in energy, we always look at the long-term fundamentals, not the short-term market fluctuations of the price. And when you look at energy, so there is a move down and it's not surprising to us. When you look at the fundamentals of energy, and you really look through the sort of trading trends, what you see is that the supply curve where oil is economic, it’s very, very flat at around $80. And so therefore, if the price of oil were to drop for an extended period of time below $80, you would see -- ultimately that would drop supply in the marketplace. And therefore while the price of oil can go down below $80 for some period of time, of course and even some moderate period of time, if you're looking over a five year period, our longer term period to how we gauge our investments, it's likely to be that price or above. In terms of the upside in oil, it's certainly geopolitical events and other things can knock it up. So if you go into it and you have -- so we look at things and we say okay where we buy -- and most of what we’re doing in oil and gas on the private equity side, we’re buying oil and gas at a pretty significant discount to that price even today. So, you can know that price is today at 80 and it was a 90 kind of a few months ago, for us we were always buying below 80 anyway because we didn’t really focus on the current -- that current price, we’re always focusing on the 80 to begin with. So, we feel like what’s driving our ability…

Okay. Thanks a lot.

Thank you. Your next question comes from Luke Montgomery of Sanford Bernstein.

Good morning. Thanks. So, I wondered if you guys had any thoughts about CalPERS’ decision to exit hedge funds and what that means to the appetite for alternative strategies more broadly. I think I appreciate that you guys are in the enviable position of being able to raise more capital than you can deploy. But just generally do see any dialogue amongst the large asset owners of the private equity industries had risk of becoming overcapitalized and that the returns will be insufficient to compensate the risk? So just with the general sentiment around the asset class with LPs at large?

You’re saying general term as around hedge funds or around private equity?

No, it was sort of more of read through of the decision to exit hedge funds and what that might mean for private equity?

I think CalPERS, it's hard for me to come on CalPERS specific motivations, particularly they maybe a large investor there. Relative to other institutions’ interest in hedge funds, I continue to think it's a robust asset class. So, I don't think -- I think certainly hedge funds recently, certainly actively managed hedge funds have had tougher returns this year. But I don’t really see a big movement out of hedge funds relative to our investors.

Yes. And I would just add, I think based on the statements that they made I think I don’t want to necessary speak for them. But I think there was a view that the hedge fund asset class for them at high fees and returns that not meet expectations that was specific to the hedge fund investments. I think clearly as we look broadly across alternative and look at private equity and credit, the return certainly Apollo have been very strong and have delivered what has been offered up to investors in terms of the investment terms.

I mean, the hedge funds also, I mean it’s a broad category so it kind of comes out, I mean long short equity hedge fund have been particularly hard hit in this last year because many of them bet against the federal reserve policy and self interest rates are going to go up and lost. And so, therefore that particular category, I haven’t looked at the map, but I think I wouldn’t be shock if there was some decline in that category. When you say hedge funds there is, when you broadly define the credit hit, including credit mandates and credit hedge funds and so again those that’s been growing a lot. And so you have to also -- I have my sense from your comment is that you’re talking about long short equity type hedge funds. And we don’t really do that has no affect on us, if you want a broadly define some of our credit businesses’ hedge funds that talk kind of a business is growing abut at fast as anything in our business. And also you also have to be careful with a little bit with the nomenclature of how you're describing it.

Okay. Fair enough. And then I share the frustration with the focus on mark-to-market over quarter, but I'm going to take a step at this anyways. I wondered if you could just talk about what your general approach is to calculating the performance on the privately held positions, what the weights on the inputs are. I'm just trying to develop a sense of the potential volatility of that piece versus the public piece and if there's any systematic way to think about it.

Sure. So every company is different. We have a pretty robust valuation process, but -- each company individually and it comes it to inputs that are relevant to that sector. So it's not a single set of inputs we use. It really depends on the industry's vertical, the maturity of the company and how it close it might to an action.

But there is a systematic I mean there is a really systematic process of valuing private investment that is that we try to make very robust and very consistent I don't know if you want to comment on that Martin.

Yes. I mean we have a set of valuation committees that cascade up or down from asset costs up into a fully committee and we really should decompose all of their assets down into groups we're focused on. That should be better rolling for their asset class. And so we use all available evidence that we can available to us, but inside and outside the funds to help guide that valuation process.

Okay, thanks.

Thank you. Your next question comes from Marc Irizarry of Goldman Sachs.

Great, thanks. Related to that, Josh, could you maybe comment -- I might have missed this, but on the private equity, private company performance, just the operating performance, maybe how much of what are you seeing in the environment is sort of a little bit more market than sort of what’s going on fundamentally with the portfolio?

Yes. So, let me start with that. So we look at the performance in our portfolio on a rolling 12 month basis and on both the revenue and on EBITDA basis and we look sort of year-over-year and then quarter-over-quarter. And the underlying performance is strong in all four, the revenue and EBITDA terms in both those time periods. So, quarter-over-quarter Q3 to Q2 on a 12 months rolling basis revenue and even EBITDA both up between 2% and 3%. And then on a year-over-year basis, similar 12 months rolling, they’re up so between 5% and 6%. Revenue is growing; EBITDA is growing a bit more with cost management. So, the underlying fundamentals across the book are really quite healthy.

Okay. And then just getting back to the volatility in the market and then your ability to deploy capital particularly and I'm interested in some of the credit strategies and just thinking about the locked in, the longer dated capital and versus the liquid capital and your ability to sort of capitalize on volatility and credit. Obviously things can snapback and have been snapping back pretty quickly, Josh, any view on just having a real, this year you’re having more flexible or nimble capital and creditors and is that an advantage for you to put capital out as things move pretty quickly?

Yes. So that’s a huge advantage and we have a lot of liquidity. And again when -- during the three or four week period between the end of September and mid October, we did see a pullback in certain sectors, particularly which I mentioned and we put a bunch of money to work. And so from our point of view and how to pull back, we would have put more money to work. And what we're seeing is that because the dealers don't have as much as capital in terms of trading books, we're seeing the prices of securities gap a bit more, when there are selling pressures. So things gapped down in certain cases, 10, 15, 20 points, bought a bunch and then they gapped back up. So, there is less liquidity in the marketplace either way. And I think it's fine, I think there's people out there with a lot of capital like us that are sitting there waiting for these opportunities. And I think that's how it worked. But, so I think that's a huge advantage. We do look over a much longer time period and try to take advantage of the volatility when it comes.

Great. And then just I guess Gary, you mentioned the credit SMA. I'm just curious if there is any visibility at all into sort of pipeline of what those sort of mandates could look like going forward? Thanks.

I mean right now there is a lot of conversations and a lot of interest. Because what's happening is that the large institutions, again I'm looking at their fixed income portfolios and saying wow, I'm making 3% or 4%. And I don’t -- I’m not being paid for the risk and the duration that I’m taking relative to fixed income markets, which are being priced off of governments and treasuries, which are continuing to be overvalued, significantly So people are getting worried about the duration and the interest rate that they’re earning on that portfolio and they’re looking for other alternatives. And so as you know the fixed income bucket is a lot larger than the alternative bucket in the pension system. And so when people decide to look at that, you’re talking about kind of $0.5 billion chunk plus or minus which can move the needle. And many of these institutions decide they don’t want to necessarily being coming all the funds. And so there is a lot of people setting these things up to get ready for what they see as a rising interest rate environment over time. So there is a lot of interest in that area.

Okay, great. Thanks.

Thank you. Your next question comes from Bulent Ozcan of RBC.

Hi. Just a quick question, just to go back on the two valuations. I’m not sure if you’ve disclosed that. But could you give us the mark on your non-profit portfolio companies; what it was in the September quarter?

Bulent, we don’t disclose at that level of detail.

You don’t? Okay, And in terms of the EBITDA growth, you’ve given us on a rolling 12-month basis, but could you give us the EBITDA growth on a basis sequentially for your portfolio companies?

I did, so I gave two statistics, one was -- it’s all LTM last 12 months, rolling 12 months because that takes up the seasonality. And so we've provided rolling 12 months Q3 versus Q2 and rolling 12 months Q3 this year versus Q3 last year. And so those numbers that I mentioned were about of those timeframes.

Okay, great. So, you don't look at bases sequentially on a quarter-to-quarter basis.

We don't because some of the companies have seasonal attributes to the sales for [transfer]. So it's better, best to look at on LCM basis.

Makes sense. And then a quick question and I'm not sure if you can comment on that or not, but on the recent acquisition of the insurance companies, the European insurance companies in Italy. Should we think about that as investment by PE funds into portfolio companies or are there certain synergies that can be realized in terms of distribution of just having a fee and these two companies combined, the operations?

Yes. That's investment in our private equity fund. It's just investment in our private equity fund and it's again driven by the need for many, many banks in Europe to deleverage and free up capital. And so, we were able to take advantage of that in terms of buying that at a very good price. And so there is no growth, and we're not looking synergies across the portfolio on that one.

Yes. And given I guess the recent stress test results out of Europe and Switzerland, out of Italy; are you seeing an increase obviously in the pipeline or are conversations happening more frequently on transactions or potential transactions?

Yes, we are. I mean obviously if you look at the two of the deals -- if you look at the deals we're announcing right there and energy or financial services in Europe. And so there is generally an overpriced environment and it’s not by accident that’s because there is a lot of pressure in Europe, the stress test being the latest thing, but it’s been going on even before that for people to -- for the bank gets smaller. And then in the energy sector there is a lot of opportunity here in North America relative to the shale phenomenon and the significant reduction in the cost of creating reserves here relative to global pricing. And so these types of sort of macro pictures that create excess selling or excess capital need is driving pricing down in these types of sectors to points where we can actually make good money. And that’s why we’re focusing on these sectors in an otherwise overvalued PE environment, I mean the PE environment is not cheap, it’s actually very, very high. And so I look at all these as a manager of our PE business. And I think we’re doing a pretty good job of getting money out in good investments in a difficult environment by focusing on these types of opportunities.

Thanks. That makes sense. I appreciate that. Thanks for taking my questions.

Okay.

Thank you. At this time there are no further questions in the queue. I would like to turn the call back over to Gary Stein for any closing remarks.

Thanks, operator. Thanks everyone for joining today. Obviously, if you have any other questions, please feel free to call, follow-up with Noah Gunn or myself. And again hopefully, you'll all be able to join us for our Investor Day on December 11.

Thank you. This does conclude today's conference call. You may now disconnect.