Good morning, and welcome to Apollo Global Management's Third Quarter 2018 Earnings Conference Call. During today's presentation, all callers will be placed in a listen-only mode. And following management’s prepared remarks, the conference call will be open for questions. This conference call is being recorded. This call may include 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 on this call 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. 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 would now like to turn the call over to Gary Stein, Head of Corporate Communications.

Great. Thanks, operator. Good morning, everyone. Joining me this morning are Josh Harris, Co-Founder and Senior Managing Director; and Martin Kelly, our Chief Financial Officer. We’re also joined by Jim Zelter and Scott Kleinman, our Co-Presidents; and Gary Parr, Senior Managing Director. Jim, Scott, and Gary will be available for the Q&A portion of call. Earlier this morning, we reported distributable earnings of $0.55 per share, which led to a cash distribution of $0.46 per share for the third quarter. The quarter’s distributable earnings were primarily driven by fee-related earnings or FRE of $0.48 per share. Lastly, we reported an economic net income of $0.83 per share for the third quarter of 2018. With that, I’ll turn the call over to Josh Harris.

Thanks, Gary, and thanks everyone for joining us. During my prepared remarks this morning, I would like to share my thoughts on a few key drivers that continue to propel Apollo’s business forward including the ongoing growth of our fee-related earnings, the pace of our managed funds capital deployment, and the solid pipeline for continued asset growth. I’ll then turn the call over to Martin so he can provide you with some comments regarding our third quarter investment performance, and financial results before we take your questions. I’d like to begin my remarks by touching on Apollo’s growing earnings power, particularly as it relates to our fee related earnings or FRE. As we've said before, we believe FRE is a critical financial metric since it is foundational component of our quarterly and annual cash distribution that is largely based on recurring management fees. I'm pleased to note that our fee related earnings have continued to increase reaching $0.48 per share this quarter which is up 20% versus the year-ago quarter. It’s important to recognize that our company’s FRE is extremely stable and predictable since it is primarily generated by long-dated funds and permanent capital vehicles, which we manage. In addition we expect that our FRE will continue to trend higher over time as we grow the fee generating assets under management across the Apollo platform. Revenues from management fees have comprised approximately 90% of our total fee revenues historically and have been growing at a compound annual rate of approximately 13% over the past five years. This growth in management fees has been augmented by the ongoing focus on efficiency, cost discipline and operating leverage which has driven margin expansion that led to 19% compound annual growth in core fee related earnings over the same timeframe. Going forward, we will…

Thanks, Josh, and good morning, again, everyone. Starting with distributable earnings, the $226 million or $0.55 per share we generated during the third quarter was driven by strong growth and stability of our fee-related earnings, as Josh highlighted. Fee-related earnings of $197 million or $0.48 per share were complemented by realized performance fees and realized investment income, principally generated by monetization activity in Fund VIII. In addition to our strong and growing FRE, our economic net income for the third quarter was bolstered by appreciation of Athene stock price as well as positive net performance fees, which was partially offset by elevated profit share expense. The net result of these items drove economic net income of $334 million or $0.83 per share post-tax. As it relates to the quarterly mark on Athene, the fair value increased by 18% quarter-over-quarter due to the higher trading levels of its stock and by a modest reduction in a liquidity discount on shares held on our balance sheet. The net impact of the increasing value on our economic earnings was an unrealized gain of $0.39 per share for the quarter, which flowed through both credit and private equity given the nature of how we acquired the shares we hold. Although the mark-to-market value can fluctuate meaningfully from one quarter to the next, we believe strategic investments like our 10% economic stake in Athene serves to strengthen our balance sheet and further align ourselves with a key strategic partner. I also want to note that while they had been some negative press reports regarding Athene and Apollo, we believe those reports are inaccurate and misleading. Next, I'd like to provide some context behind the quarter's net performance fee generation. Total performance fees for the quarter were $127 million or $49 net of profit share. Notably,…

[Operator Instructions] Our first question comes from the line of Alex Blostein of Goldman Sachs.

So, maybe to start with just the outlook on fee-related earnings, you guys continue to highlight that obviously is a very important measure. Couple of things I was hoping to hit on. A, can you talk a little bit about the new infrastructure business and kind of the opportunity that you see for that business to evolve with the GE acquisition? And two, now that we’ve seen a big step up in management fee from Fund IX, what sort of management fee growth you guys anticipate over the next several years as some of these newer initiatives come into play?

Yes, I mean we've obviously been growing management fees at low double-digit and then we have significant operating leverage in the platform, so that our earnings grow at mid-to-high teens and certainly you know we've added a lot of things to our management fee in the last year, which are going to annualize next year. Certainly not all, Fund IX will annualize next year, and the Voya transaction will annualize next year. And then there's a series of other things that are coming. And so, we expect to be able to continue plus or minus on that trajectory. In terms of the GE acquisition, I'll let Scott Kleinman comment on that because he led it.

So, as Josh mentioned in his comments, we did make our acquisition of about a billion dollar pool of assets in the infra-equity business, which really complements a bunch of the energy and infra investments we were making in some related funds. So, to your question about where we go from here, I think this creates a really attractive base when combined with the infra debt business we've been managing for a couple of years now. And our goal would be to see this grow over the next few years. So, this is an area we think there's a lot of opportunity. Apollo brings, I think a very attractive skill set to that space. So, we're pretty excited about it.

Our next question comes from the line of Robert Lee, KBW.

I guess my first question would be - given that your outlook for fundraising I guess pretty positive, but we’ve seen particularly in insurance as you highlighted that so many - it feels like it's become the - every - all of your competitors seem to be entering the business or trying to get into it and obviously, you've been doing it longer and are larger, but what is this doing, what do you think it's doing to the opportunity set in some places whether with Athene and other annuity assets I mean are you - how are you kind of tactically shifting to respond to growing competition or at least what it seems like?

So, this is Gary. I would make a few comments. First is, it's a very broad industry - very large industry. As we talked about for example in Europe, there is roughly a $3 trillion opportunity. The U.S. is still a similarly very large marketplace. Interestingly, the first thing we've done strategically positioning is that we through our various affiliation have more capability than anybody else really having the fixed annuity spread, capability of Athene, we have a capability in Europe, we have property and casualty front office expertise. And so by having that we will try to approach ideas with companies to provide solutions. We'd like to find complex situations where we can help someone solve their problems and we have an array of expertise. So that’s our comparative advantage. We can also actually look at transactions that are larger than what most can look at. We have - of course we have the various markets of capital. As to the field of opportunities on the marketplace, there aren’t a lot of strategic buyers, and so that actually creates opportunity for us as well, so it’s not just whenever we’re looking at the insurance industry, it’s not limited just to financial sponsors or alternative asset managers and what they might do, one has to look at strategics and there are a limited number of strategics that are active indeed many of the strategic companies are repositioning and selling businesses, so that's what's creating the opportunities for us.

My only voice, however is obviously you have to continue to innovate. We have a 150 people focused on insurance and financial services and certainly people have seen the success in some of the stuff and they’re copying parts of it and the like, when you look across the spectrum of what we can do, it's much broader and we're looking at new areas all the time that I - to add and augment that other people just can't follow. So I think like - I think that we're going to stay ahead of the pack here based on the expertise, the growing expertise we have, but certainly you can't stand still.

Our next question comes from the line of Michael Carrier from Bank of America Merrill Lynch.

Maybe just a question for Josh. Just on the underperformance, you guys gave some color on [ANRP] portfolio with the privates flattish. Just wanted to get your take on, how you’re seeing the portfolio and probably more importantly just when we think about going forward, how that should build to net accrued and then the realizations over time? And I understand like last year, it was a great year for the portfolio, but I just wanted to get some sense on the outlook in terms of what you’re seeing?

Yes, look, I mean, I’d say that the portfolio is heading in a very positive direction. Certainly, as I mentioned in my remarks, 75% of the overall private equity portfolio is Fund VIII, right. And the balance is stuff that where sort of remaining portfolio investments that we're liquidating from everything else. Fund IX, obviously has 1 investment in it - 1 committed investment in it. So I would say that Fund VIII returns are about 23% gross. And I think that speaks to this - so you will see some quarterly volatility on marks, but bottom line is heading in a very positive direction. EBITDA for the portfolio and revenues for the portfolio were up around 5% each. And so the portfolio is maturing very, very nicely, and we would expect it to continue to head in a positive direction and be consistent with our past performance, which is top of the industry clearly. Relative to kind of realizations. It's hard to imagine, this is a very low year for us, and we're in a life cycle where Fund VIII is literally a 2 - the average investment in Fund VIII is about - just a little over 2 years. So we would expect that fund to mature, and we would expect our realizations to go up significantly over the next few years. Having said that, obviously, it's market dependent. And when you see volatility - we've been expecting some volatility. We're certainly seeing a little bit of that now. And we - it's not - if the environment doesn't - isn't conducive to realizations, then we'll be more buyers than sellers. And so predicting on a quarterly basis is relatively complicated, but we still feel very, very positive about everything that's going on.

Our next question comes from the line of Bill Katz of Citi.

So a little bit of a nested question. You sort of highlight stability and visibility of your FRE, the management revenues underneath that, the permanent capital vehicles and saw the nice growth that you sort of laid out both FRE as well as new money coming in across a broadening global platform. So looking at the relative spread of your stock price versus KKR or even areas that have sort of shifted to C-Corp, what's your latest thinking on that at this point in time? And what are some of the milestones that you might be thinking about that would further reflect on your decision-making?

Yes. So clearly, we're obviously incredibly focused on our stock price as the 3 of us own a huge amount of shares and the employees own a huge amount of shares. And we know that, certainly, we do think there has been some positive uplift in the stock certainly of KKR over since it's started talking about its C-Corp. Having said that - and so we're looking very hard at it and very focused on it. There's no real milestone to really - unfortunately, that sort uplift is going to have to stand the test of time of it, because as we've said before, you're destroying cash flow permanently, right? When you - unless the tax law change, you look at the current tax regime, this is really beneficial to shareholders. And so you want to be studied and thoughtful about it. And so we don't really have a milestone. By the way, the stock price is changed daily. I mean, we're all sitting around yesterday and staring at KKR's performance since they converted, and it's not dissimilar to ours, but depends on which time period you pick. And so I don't think there's enough information yet in the marketplace. I think certainly as people season and as indexes come into play, and all of the things that you all are - that we're all focused on, we are going to see how all that goes and it make a decision. If we think we can create value long run for our shareholders, we're going to do it. And so that's really as much as I can say at this point.

Our next question comes from the line of Ken Worthington from JPMorgan.

Just on real assets. So that business continues to show very good growth, albeit off a small base. I was hoping you could further flush out, maybe the successes you're having there. I'm going to try to wrap it this into this question as well. I assume the future relationship leadership with the GE falls under real assets. If that's the case, can you explain, again, what you're doing with GE going forward? Because I didn't quite get how the go-forward relationship is going to work. Thanks.

Sure. Our real assets platform consists of a variety of real estate, equity businesses and real estate debt businesses really globally. You are correct. As we build out our new infrastructure platform, that also will fall under that segment. So yes. No, I think you're right. Those businesses have been performing quite well. And in fact, we would expect some additional fundraising next year as a few of those businesses are coming to the end of their dry powder. So activity has been pretty strong in those businesses, but as you pointed out, off a smaller base relative to our other businesses. With respect to the ongoing relationship with GE, that will be a - think of it as a sourcing-and-flow arrangement as GE continues - the business originally arose from GE's power equipment sales business and many of their clients looking for a variety of funding arrangements. And so there will be an ongoing relationship. While that won't be the only source of flow obviously from the business, that will be a strategic leadership that gives us a first look at many of those opportunities.

Our next question comes from the line of Michael Cyprys of Morgan Stanley.

I just wanted to follow up a little bit on the infrastructure renewable asset portfolio from GE. If you can just talk a little bit about the economics? How the funds are going to be structured? What are you targeting in terms of returns, investment horizon? And how it differs from the existing ANRP funds? And any additional headcount when you bring on to platform? Sorry, just a bit under the weather.

Sure, Michael. This is Scott again. The businesses that are in that portfolio and what would be the crux or the focus of the new fund would be more in the core plus or value-added segment of the infrastructure space. So think 10% to 13% type IRRs for those style of investments. That differs from our natural resource - existing natural resource fund making energy investments, but in the 20% plus rates of return. Obviously, our infra debt business would be in the 6% to 10% type rates of return. So hopefully that sort of covers the spectrum. And as you can see, this is a welcome addition to the middle portion of that return spectrum that Apollo was looking to really build up and fill out its product offering profile.

Most of what our NRP does is upstream and natural resource based, and obviously, we hedge it, but there's some amount of commodity risk. As you move to infrastructure, it's generally midstream or downstream. And so the price fluctuations and the volatility are much lower, and therefore, the returns are much more predictable and they're almost different businesses.

Our next question comes from the line of Craig Siegenthaler of Credit Suisse.

Can you update us on your progress to form? I think it's around 10 credit portfolio companies like MidCap, like the GE business. And really, the purpose of these 10 business is really to help fund your insurance operation.

This is Jim. Certainly that's - as we've laid out in the past, that's currently our long-term goal is to have a variety of these origination platforms, whether it's MidCap, whether it's our aircraft, whether it's in other types of U.S. mortgages, Amerihome. So certainly, we are on the constant front to bring those teams in. We've made some nice progress in continuing to establish our existing platforms this year. Certainly, when we first looked at the infrastructure opportunity, we looked at it from a debt side. As Scott mentioned, we found the opportunity with GE on the infrastructure equity side. So there's nothing new to report in terms of a new platform that we've seated this year, but the consistent growth and experience that we've had in our other platforms is still a key attribute of our long-term objectives, and we're constantly on the hunt, but good steady progress in the vehicles in the platforms we have to date.

Yes. One thing to just make sure there's no confusion on. So we've gone from 0 to $126 billion of this stuff over the last 8 or 9 years and it's a growing part - it will grow faster, we think, than - it'll becoming an increasing percentage of our company, but I'm not sure where the 10 permanent capital vehicles came from. I think we're always looking for opportunities and certainly going to continue to do this. But the 10 thing, I just wanted to clear up.

Our next question comes from the line of Devin Ryan of JMP Securities.

First question, just for Josh and following up on your comments on the public market valuation ex of FANGs, which was interesting. It sounds interesting sounds like you're seeing some attractive opportunities, which is I'm assuming while it's highlighted and obviously recently entered OneMain. So I guess first, does that tell us anything about the competitive dynamics in the private markets on a relative basis? And then in the public markets, what characteristics are you looking for? How does that differ than how you're evaluating private investments? I'm sure there are some additional considerations. And then are there sectors that you feel like really stand out as being really dislocated?

Yes. So I think first I'll just take the - there's a lot of questions there, but I'd say the fundamentals we're looking for are similar. We want to buy good companies at low prices, good franchises that have a reason to exist, that have reason to flourish. And so what we do is we literally just look for the best possible pathway to be able to do that. And in certain cases, it's to distress for control market. That hasn't really been a great market. And what we're finding - and certainly, in many cases, it is the private markets. And to add on to what you said, yes, we are seeing - the private markets are generally driven by leverage - the availability of leverage finance of bank and high-yield capital and the dry powder. And we're seeing those markets a bit more competitive. The public markets general driven by a lot of other factors. Certainly, there are the haves and the have-nots in the public markets today. If you're a category, if you're an industry leader and you're in a favored industry, particularly growth or technology industry, you trade at a very high multiple. And there's a lot of companies that have been left behind and a lot of industries that are left behind. I mean, I would argue that the alternatives have been unfairly left behind to give us a gratuitous, but I think authentic, plug as to our particular industry and our company. But there's a lot of examples of it, and if you have a complicated story you're not really welcomed so much in the public market. So that is creating a very fertile hunting ground for private equity and we do see more opportunities there and certainly, the 10-plus billion of capital we put out recently into the public markets continues to - will continue to grow.

Our next question comes from line of Glenn Schorr of Evercore ISI.

Curious, the Asian markets have come in a lot more than, say, the U.S. Curious if it either accelerates your enthusiasm as individual investments? Or for may be taking Apollo there in a more significant way?

I would say that we've obviously been watching some of the volatility was going on in some of Asian markets, mostly in the equity market, which as you know, we really - unless it's private equity don't really play day-to-day in the equity market. Certainly, I think we have long-term objectives in Asia, which we've talked about in the past whether it's taking advantage of our skill set in value private equity, which Scott can talk about. But I think overall, we're noticing what's going on in recent volatility in the equity markets, but our long-term plan and our long-term investment discipline is really not going to change in terms of a value player. And Scott can talk a little bit about our expansion and our thoughts about the Asian pursuit as well.

Yes. Look, we've talked about on these calls before, but we are pretty rifle shot when it comes to entering new markets. And so we've been in India, for example, for some time. The volatility there is interesting. It's creating perhaps even an acceleration of opportunities. And we continue to invest, both in companies and in the team on the ground in India. We've also made comments about our desire to start to plant the flag and grow in Japan, and so you'll be seeing some of that. Again, cautiously and nothing heroic in the beginning, but those are really where we're spending time now from an equity stand - private equity standpoint. Everything else is we're just cautiously watching.

I appreciate that. Just one quick follow-up on the private equity performance. I hear you loud and clear on Fund VIII, where it's tracking, and it's the biggest piece of what's left. How are we supposed to look at that, the trailing 12 performance, that 10% way, it's like half of what we're used to for the last 30 years for Apollo? Is that just episodic and it's a stub so it means less?

Yes, I think that's right. It - after a pretty big couple of years, the years prior, I think - remember that the portfolio is made up of 40 to 50 individual investments. And as you see, some move faster, some move a little slower. I think that's really all you can read from it. To sort of echo Josh's comments from earlier, we still feel really good about this fall portfolio and its ability to deliver returns consistent with our historic averages.

Our next question comes from the line of Patrick Davitt of Autonomous Research.

How do we reconcile the flat private PE mark with your comment that EBITDA growth is in 5% range and markets were up 5% to 7% in 3Q? And similarly, why did the credit performance fee trend appear to diverge so significantly from your mark. Do both of those suggest some idiosyncratic markdowns? Or is there something else going on there?

Yes, so in PE, it's - we look at the comps. And so for the comps that we look at based on the companies that we own, in the quarter, there were some headwinds on comp multiple compressions. So that's sort of was an offset, so an underlying improvement in performance. And then in credit, our year-to-date carrying credit is pretty much the same as it was last year, 9 months on 9 months. And so in this quarter we had 2 positions in Europe that we took some losses on. And so they're idiosyncratic. They're not a read across for the rest of the book, but that created the blended 1% uptick in the drawdown funds that you can see in the tables. And that's less than what you need to sort of keep up with abbrev. So that's what sort of when you blend it all together was the reason for the lighter credit carry in Q3 relative to prior quarters.

Our next question comes from the line of Chris Harris of Wells Fargo.

If the equity market stabilizes from here and the environment for exits is good, do you guys think you could simultaneously be a net seller while growing FRE by the double-digit percent you referenced?

Yes, we do. I mean, all of these are idiosyncratic. I mean, at the end of the day, right, your job as an investor in private equity is to buy well, create value and then sell. None of this stuff, it's all meant to be a 5- to 7-year underwritten deal. And so there's clearly going to be lots of situations where we don't think the particular market backdrop is fantastic, but we've created a lot of value in a company. We've achieved our objectives, and we sell it. And at the same time, the 14.5 multiple that we talked about relative to the S&P, excluding the tech stocks, the FANGs, that's going to create a buying opportunity across the public markets. And so they're not linked. I mean, on a broad basis, certainly, obviously, if there's a better sellers' market we'll sell maybe a little bit more. But by and large, we've a job to do over 5 years, 7 years, 3 years. And not only that, each industry is very unique. There'll be a bunch of industries that might be trading well and some others aren't and so we invest across many, many industries and so you can't really generalize. So anyway, yes, I do think that you could have both of those things occurring.

Our next question comes from the line of Brent Dilts of UBS.

My question's on the revised fee structure with Athene. So as you look at organic and inorganic growth at Athene over the next few years, how are you thinking about allocation across the difference of allocation fee buckets? And what that mean for - what that might mean for the overall fees you get paid? And then within those higher fee asset classes, is there any clawback arrangement tied to the fees?

So as Athene has said in their Investor Day and pretty clearly in their disclosure, when we restructured and amended the construct, we really did it in a manner which align our objectives and their objectives of net investment returns in the portfolio. So with - as you know, the base fee got readjusted down and the ability for us to create and source and analyze successfully the higher-yielding assets across the portfolio, still many investment grade but higher-yielding commercial mortgages and the like, we get a higher return and we get a higher fee base. The more that we're able to produce those assets and contrast that to investment grade corporates, it's a lower fee. So we're exactly aligned with the same long-term objectives. Certainly, there is a comprehensive proposal and the structure has it, the ability for us to generate higher returns. There is a once-a-year look back. But the basic construct of our fee to the benefit of Apollo is very similar, but it creates the right objectives and long-term alignment.

Yes, to be clear, I mean, the fee arrangement day 1 is net neutral to both companies, as we've stated. And - but over time, look, they're looking for us to provide excess return. And then - and if we do that, we'll get paid more over time. We don't do it, we'll get paid less, and we're confident of our ability to do it. So that's the alignment Jim's talking about.

Our final question is a follow-up from the line of Robert Lee of KBW.

And thanks for taking my follow-up. I just want a quick question on Catalina. I guess, I just wanted to better understand the recent fundraising in transaction. Was that something that Apollo participated in directly? And should we be thinking of that as another permanent capital vehicle even though you don't kind of list in that fashion?

Between Martin and I, we'll address that. We do not see it as a permanent-capital vehicle so we, for example, we don't manage the assets of Catalina currently. We will provide some services over time to them, so that will increase. But as it is structured, it's somewhat different, but we do see it as a core part of our strategic ability. We are active in active dialogue with Catalina. We actually have already been working on 1 transaction in conjunction with Catalina where we bundled it with others our - other companies that are in Apollo field, others we work with. So that part, it is a tool and a part of us delivering solutions for the balance sheet.

Yes, we don't directly participate in funding that. With the drive a transaction fee, which we mentioned. And then it's sort of a - as Gary said, it's sort of part of the broader insurance platform where we may be paid management fees for business related to it but not directly related to assets in Catalina.

But just to be clear, I believe this is in our AUM and in sense, we did what we've done with his platforms, which is we went out and arranged investor capital and put up a GP commitment. So I think we're maybe - I just want to make sure we're clear. This is just like Athene, just like Athora, we raise this vehicle. We do not manage the assets, but it is, as Gary said, part of a - it gives us another capability, right, that others don't have that allows us to holistically approach insurance companies with solutions. So I think depending on how you define a permanent capital - a strategic platform, it either is or it isn't. I think probably it is, but the distinction as to this versus Athene, which is the asset management, has been laid out.

And thank you. That concludes the Q&A portion of today’s call. I will now return the floor to Gary Stein for any additional or closing remarks.

Great. Thanks operator. Thanks again everyone for joining us this morning. We look forward to speaking with you again next quarter. Thank you.

Thank you, ladies and gentlemen. This does conclude Apollo's third quarter 2018 earnings conference call. You may now disconnect and have a wonderful day.