Good morning and welcome to Apollo Global Management’s Fourth Quarter and Full Year 2018 Earnings Conference Call. During today’s presentation, all callers will be placed in listen-only mode. And following management’s prepared remarks, the conference call will be opened 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. Sir?

Great. Thanks, operator. Welcome to our fourth quarter 2018 earnings call. Joining me with me this morning are Leon Black, Founder, Chairman and Chief Executive Officer; Josh Harris, Co-Founder and Senior Managing Director; and Martin Kelly, Chief Financial Officer and Co-Chief Operating Officer. Two other senior members of our team are also participating on this call, including one of our Co-President, Scott Kleinman and Gary Parr, Senior Managing Director. Scott and Gary will be available during the Q&A portion of today’s call. With that, I will turn the call over to Leon Black.

Thanks, Gary and thank you all for joining us this morning. My remarks will be focused on the continued strong growth and diversification of our business over the past year despite the significant volatility within equity and credit markets in the fourth quarter of 2018. I would also like to highlight the ongoing drivers of growth ahead for Apollo, including fund-raising and opportunities for capital deployment. From there, Josh will discuss the earnings power of our business, which is supported by stable growing and recurring fee-related earnings. He will also provide you with some color around our recent performance as well as details regarding the increase in the buyback authorization we announced this morning. Martin will conclude our prepared remarks with a few words about Apollo’s financial performance before we take your questions. I would like to start with some comments on asset growth across the Apollo platform. During the fourth quarter, we generated strong gross inflows of $22 billion, which brought full year gross inflows to $60 billion, including more than $35 billion among our permanent capital vehicles. Notably, this growth occurred in a year where we did not have a flagship private equity fundraise which we believe highlights the ongoing expansion and the diversification of our traditional product offerings and strategic capital initiatives as well as the high level of demand for differentiated returns by our fund investors. Our strong track record through cycles has continued to resonate with fund investors and has led to new and longstanding institutional relationships, not only in successor vintages of flagship funds, but in raising capital opportunistically for new and expanding initiatives. Over the past year, we have raised nearly $13 billion of capital for funds and products that did not exist 5 years ago and we believe our culture of continuous…

Thanks Leon. As we have said previously, we believe the earnings power of Apollo is closely tied to our fee related earnings or FRE, which is largely based on recurring management fees and which we view as stable, growing and a foundational component of our quarterly cash distributions. The fourth quarter was an excellent case study for this. Despite a challenging market backdrop, we reported FRE of $0.62 per share bringing full year FRE to $1.87 per share, which reflects 22% growth over 2017. This growth is consistent with our track record over the last 5 years, a period during which we have grown core FRE by 21% on a compound annual basis. 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 12% over the last 5 years, supported by very high proportion of permanent capital vehicle and long-dated funds. This growth in management fees in conjunction with an ongoing focus on efficiency and cost discipline has driven operating leverage and significant margin expansion. Going forward, we will continue to focus on driving our FRE higher since it is a reliable source of cash each quarter regardless of whether we have any significant realizations from funds that we manage. We declared a $0.56 per share cash distribution in a light realization quarter bringing the total cash distribution for 2018 to $1.83 per share for the year. Moving on, I would like to provide some additional color on the diverse set of investment products which contributed to the strong $22 billion of gross inflows in the quarter from flagship drawdown funds, evergreen funds and permanent capital vehicles. Starting with private equity, which had inflows of approximately $3 billion during the quarter, we have continued to…

Thanks Josh and good morning again everyone. Starting with distributable earnings the $262 million or $0.61 per share after tax that we generated during the fourth quarter was driven primarily by growth and stability of our fee related earnings as Josh has highlighted. Fee related earnings of $256 million or $0.62 per share were complemented by a modest amount of realized performance fees and realized investment income principally generated by monetization activity in private equity. FRE grew 30% versus the prior quarter and 36% versus the fourth quarter of 2017 supported by both management fee growth and advisory and transaction fees. Advisory and transaction fees of $70 million in the quarter were driven by co-investment fees related to the Catalina, GE and LifePoint transactions. Although transaction fees can be variable on a quarterly basis since they are generally tightened to the pace of capital deployment, our full year advisory and transaction fees for 2018 of $112 million are very comparable to last year’s aggregate fees of $118 million. In contrast to our strong and growing FRE our economic net income or ENI for the fourth quarter was negative $1.01 per share post tax and was significantly impacted by the depreciation of Athene’s stock price and our private equity public portfolio during the quarter. The face value of Athene decreased by 22% quarter-over-quarter reflecting the lowest stock price, modestly offset by the removal of the liquidity discount on the shares held on our balance sheet. This had a negative $0.51 per share impact on our economic income in the fourth quarter. In light of how our business is evolving we expect to continue to emphasize FRE and to report distributable earnings or DE as our primary earnings metric going forward as we feel this better represents our underlying operating performance and…

Thank you. The floor is now open for questions. [Operator Instructions] Your first question comes from the line of Robert Lee of KBW.

Great. Thanks. Good morning and thanks for taking my question.

Good morning.

Maybe at a high level I wanted to ask about your overall insurance strategy? So, when you think about Athene, Athora, Catalina all kind of driven by your view on shifting insurance markets, I guess FCI is the same thing. I guess maybe there is a two part question this. How do you see that resonating with LPs and then maybe more importantly in a way, I mean it’s been obviously very successful so far, but what can throw a monkey wrench into that? Is it changing regulatory landscape? Is it just trying to get a sense on it’s been so successful what could maybe derail that or what’s the investor acceptance been?

So, it’s Gary Parr speaking, I think maybe Leon’s reference to the crystal ball predicting where monkey wrenches are is always difficult to do. Let’s turn it around as to the opportunities. Today, we talked about this 2 years ago with you all about where the opportunities in the landscape and most of what we see today is similar and there are similar opportunities for the platform. What’s interesting is we have more strategic partners today. As you talked about, we added more capital to Catalina in the course of the last 12 months. We now fully capitalized Athora. And it is – Athora has spent a lot of time building out the platform. So when you look at the landscape, for example, in Europe, the pressure is on the companies there from Solvency II, actually you are getting more pressed, the notion of which geographies, companies will position in has been an increasing pressure on a lot of large companies. So, we see opportunity there. In the U.S., the issue is similarly in lines of business where people are exiting certain legacy lines of business. Interestingly, in the last 12 months, to use another good example, Catalina and FCI work together to do a transaction where it was workers compensation line of business, but it could be actually split into two components, one that fit in there with FCI and one that fit into Catalina. So we are finding ways again you have heard us talked about solutions. We have a number of these different strategic affiliates and our partners where we can try to deliver solution. So, the landscape still looks attractive to us. There of course, we have competitors in certain of the lines or the certain components, but actually incoming with solutions where we are actually uniquely positioned.

Yes. Actually, there has been significant LP acceptance of it, as kind of demonstrated by the permanent capital vehicles we continue to raise, and then the FCI fund that we talked about we have got numerous other things that we’re thinking about but like the reality is, as Gary said, we are the largest things don’t come in any packages and certainly the easy stuff is being copied, but the ability to navigate multiple lines of insurance and solve problems for insurance companies is really unique to us and we’re going to continue to innovate and stay ahead of what everyone else is doing.

And clearly the proof is in the pudding as you can see with the recent Lincoln transaction, and last year, the Voya transaction, which was pretty creative and unique and what just happened with the closing of Generali Belgium so yes, it is a competitive landscape, but I think given our scale and the different platforms we have and the different management groups and the capital, I mean, I think Athora is the best example we are now at $15 billion of AUM there, but we’re capitalized to be able to take it up to $50 billion if and when the right opportunities arise.

Alright. Thank you very much.

Thanks, Rob.

Your next question comes from the line of Alex Blostein of Goldman Sachs.

Thanks. Hi, good morning guys.

Good morning.

So, wanted to ask you about deployment that you saw in the fourth quarter and obviously some of the forward comments that Leon made about the opportunity so I guess, how are conditions from a financing perspective evolved over the course of the fourth quarter and I’m really just trying to get to what sort of changed between some of the traditional bank sources and alternative sources and what implications that sort has for your business? And again, Leon, to your point about the environment and seen more attractive opportunity to deploy any kind of color on where you’ve seen the most attractive opportunities right now, whether in private equity and credit would be helpful? Thanks.

Yes, so I’ll start, but on the credit side, certainly the volatility in December provide us the opportunity to deploy a bunch of capital was short lived in the sense of the credit markets rather in January, and we’ve recovered a lot of what they had and retraced some of the losses and so we took advantage of it you have things are very quick these days you have to be prepared in terms of financing, I’ll start, but then I’ll turn it over to Scott I mean, we were able to the financing is still available, I mean, the credit markets hung in there obviously, when you’re doing larger financings, you need to have multiple banks involved, because they’re large commitments, but and certainly they some of the terms and the rates backed up but it was still available it just got more net and some of the costs got higher and the covenants got a little tighter Scott, I don’t know if you have anything to add?

No, I would just reiterate what you’re saying I mean, obviously over the holidays, the combination of the holidays plus that’s when we saw some of the highest volatility banks pause for about a week before and week after the new year, but otherwise, banks are providing financing certainly, similar quantums in the last year, as Josh said, at slightly higher slightly higher cost of financing but for attractive deals, the financial markets are still there for sure.

The significant drawdown you saw in the equity markets, you saw some drawdown in the credit markets, but it was much more needed and retraced more quickly so we didn’t see as much opportunity as we would hope.

Okay, thanks.

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

Thanks and good morning.

Good morning, Mike.

Hi given the challenging quarter on the PE side in terms of performance, can you provide an update on how the underlying companies are performing versus the public market volatility? And more importantly, just how you think about the exit in realization outlook over the next few years?

Sure. So from a performance quarter, notwithstanding the equity market volatility, Q4 continued the trend that we had seen for much of the year, solid mid-single digits across the portfolio on average, sort of mid-single digit revenue and EBITDA growth across the portfolio the vast majority of the companies are in very good shape, but the one or two incidence is not, it’s more of an idiosyncratic Company specific issue, rather than seeing the signs of some broader macro issues there so we continue to feel good about sort of the underlying performance into 2019 across the portfolio look, as far as exit and monetization, it’s pretty consistent with what we’ve been saying for the last few quarters, which is ‘19 should be assuming that’s not a massive market meltdown ‘19 should be better than 2018 and ‘20 will be better than ’19 as we have a funding that is reaching maturity and we’ll be able to start, I think, in a more meaningful way start to monetize investments in the interim, we’ve been we’ve been executing dividend recaps where prudent and we will continue to do so but yes, that’s the outlook.

Look, clearly what we’ve seen in our portfolio is a microcosm of what’s been going on between the markets and the underlying economy in the U.S., where the fundamentals actually have been pretty attractive as Scott just said vis-à-vis our own portfolio in terms of revenue and earnings growth, but the market got very skittish, obviously, in the fourth quarter in terms of stock volatility I think our view is just to keep our heads down and just keep producing good quarters of earnings until the market becomes more rational again, that’s when you’ll see more monetization.

Okay, thanks a lot.

Okay thanks.

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

Great, thanks. Good morning. The question is on performance fee generating AUM within credit, it declined about $10 billion in the quarter I know there’s always going to be some moving parts within that and then did you kind of trying to think about the drivers of that decline it just seems kind of like a big number relative to the blended declining credit performance is down doubt about 2% if there’s any other detail you can give that would be helpful?

Yes. Sure, Devin. It’s the 2% markdown across the book and it was concentrated in a loan fund that has an 8% profile and over the last number of quarters, it’s been on or around that level and it’s flipped in and out of carry a number of times so that’s half of it and the other half is some CLO structures that fell below their carry [indiscernible] a decent as Josh mentioned before, a decent amount of that has reversed itself in Q1 so far with the rebound in the credit market.

Great. Terrific. Thanks.

Thanks.

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

Yes, thanks. Martin, a quick one for you how should we be thinking about the growth rate of your expenses for 2019?

Yes. So with the increase of margins, FRE margins are up to 54% and that’s been a steady trend now for some years we are very focused on expense management and we would expect that will continue and we’ll sort of shape the expense space around revenue growth I think, in terms of non-comp, I would expect non-comp away from placement fees, which is specific to particular fund raisings non-comp expenses should be sort of inflationary growth and then on comp, we may selectively invest more in people this year, but we will do that carefully around revenue growth as it emerges.

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

Okay, just following up on that last question thanks for taking my question as well. Obviously, you gave a pretty strong margin in the fourth quarter, transactions were up somewhat we saw 11% just as you think about what’s the right start point for FRE margins as you look into ‘19, so against the revenue expense dynamic you just pointed out?

Sure. So yes, so Q4 was high given the transaction fees at 60% that’s in our current footprint, that’s not sustainable and that sort of brought the full year FRE margin to 54% we wouldn’t expect to see that go down and so we will manage our expenses around that so I would expect at or around that level slightly up is sort of where you should expect to see the margin.

Thank you.

Sure.

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

Thanks. Good morning.

Hi, Craig.

So, credit had a gross return of negative 2% in 4Q, and I see you highlighted strengthen of permanent capital vehicle. So, I’m wondering if you could provide some color on how MidCap and the credit drawdown funds performed, especially the drawdown capital that sits inside of Athene?

MidCap’s performance was as it has been. Its – MidCap’s assets are largely almost exclusively first-lien lines with strong protection, and very, very small low single-digit default rates. So MidCap, there’s nothing to call out about MidCap’s performance in the quarter, that’s any different from what’s been. And then Athene, Athene doesn’t have much at all in the way of assets that are in drawdown funds. The far majority of their funds, their assets are invested in loans – performing loans and sort of higher grade commercial real estate debt. So, there’s not much to speak off at all in drawdown funds on Athene’s balance sheet.

Thank you, Martin.

Sure. Thanks.

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

Good morning. Thank you. Scott, this is probably for you. You caught out a few idiosyncratic problems in the portfolio and I think whether it’s fair or not those idiosyncratic losses or marks over the last year have created a perception that your portfolio might be a bit carrier or riskier than others in the comp group. Through that lens and as you look through the portfolio now, do you think that those handful are the ones that we need to worry about and the pain has now passed and we can kind of move forward from that?

So, I’m going to pick up on a comment Leon made about separating the marks versus the underlying situations. The names that have probably caused more of the volatility in the portfolio, some of the bigger, public marks are actually performing quite well. The – it’s really a matter of working through and getting the market to appreciate the value being created in those companies. As far as some of the idiosyncratic or situation specific issues in the portfolio, you know that related to one or two names particularly around some names in the energy space, where there has been some activity and I think the portfolio is pretty conservatively marked. I mean, as a portfolio in general, I think we have leveraged across the Apollo PE portfolio today about as low as I can remember it. So, incredibly defensively postured to the extent of any type of downturn should want occur over the next 6 months, 12 months, 18 months. So, I actually feel pretty good about where the Apollo portfolio is from a fundamentals and a defensibility standpoint. Really, the focus for the existing portfolio right now is driving towards exit opportunities for this portfolio, some of which is going to be market dependent and some of which is going to be creating opportunities that we’ve been able to do in the past.

I would just add, the fund aid is now at 17% returns, so you can’t really do it quite well. You can’t really, it’s still early – it’s still a bit early –

Two and a half years.

Two and a half years on average. So, I think like it’s doing fine and we have – overall, where you may have served around three times leverage-ish, a little bit more, but it’s very under leveraged as Scott said and it’s marked at a very conservative multiple that is well below the market multiple. So, I think that appropriate. So I think I don’t – you can’t really sort of – there were a bunch of high – the thing ran up a bit, it’s kind of slowly gone up from there, I mean, and we do have – we have a really rigorous valuation pricing that [ph] reflect like changing market prices, but you can’t sort of take them a quarter or two and run with it, you have to look at the overall picture.

Helpful, thanks.

Okay. Thanks.

Your next question comes from line of Michael Cyprys of Morgan Stanley.

Hey, good morning. Thanks for taking the question. I wanted to circle back on the energy infrastructure business that you’re building out. Can you just talk a little bit more about the goals and aspirations that you have there with this business you think it’d look like in say three to five years’ time, then also if you could kind of walk through kind of what’s next on your to-do-list there?

Sure. So, as we’ve talked about in the previous quarter, we did acquire at the end of the quarter, this past quarter, GE’s infrastructure equity business. We’ve been in the infrastructure business in some form of fashion for some time. We have a multi-billion-dollar infrastructure debt business, and of course, we have a large energy business which touches many of the infrastructure sectors that that we acquired. As we’ve been looking for the right way, you know infrastructure is a very interesting space that lends itself very much to the type of skill set that Apollo brings to investing. And what we had been looking for was the right infrastructure equity investing platform to really build around. We found that as a start with the GE business that we acquired at year-end, which is focused on a variety of energy, both renewable and traditional energy assets, both here in North America and globally. And so, over time, our expectation would be to continue to grow that base, combining that, our debt expertise and now some of our equity expertise, we have been adding infrastructure professionals and we will continue to grow that business through ‘19 and beyond. And so, it’s a place I’m pretty excited about and I would think over time, you’ll see – you’ll hear us talk about additional fundraisers and hopefully some meaningful growth.

Great, thanks.

Your next question is a follow-up from Robert Lee from KBW.

Great, thanks. Thanks for taking my follow-up. This is a question for Josh. I think it was maybe about a year or so ago, I think exactly when you kind of ventured, you know in talking about the momentum in FRE growth and capital raising. You kind of, I think, ventured that a baseline, distribution the way you maybe you were thinking of it, worst case is like around $1.30 or so, and obviously you’ve continued to grow, you had $1.80 in distributions last year. So, I mean, any willingness to update that and kind of how you’re seeing as kind of your true baseline, what you think you could distribute each quarter given where you are today?

Yes, look. I mean, obviously we haven’t formally done that, but clearly the earnings, I mean, you’re 100% right that the earnings power of the business is up significantly and so we’re likely to update that. And reflect it to your point, obviously, we did kind of announced $1.70. Clearly, that’s – you have been growing at 21% a year over the last 5 years. So clearly there’s and there’s momentum going into ‘19 from just even – just the annualization of Fund IX and the annualization of some of the Athene transactions. So, you could see a significant growth continuing. And so clearly, we are going to distribute a much higher level of cash, and so, yes, we will likely update it.

I’d just add, we had – as the year ended, we had about a 14% FRE tax rate. So, if you just look at after tax cash flow from FRE for the year, it was $1.58. And then we’ve got tailwinds as Josh suggested, all Fund IXs were in Lincoln’s, that should drive that further.

Great. Thank you very much.

Your next question comes from the line of Glenn Schorr of Evercore.

Hi. Thanks. I wonder if you could help us with some sort of qualitative or attribution announced on the BDCs, obviously tough quarter and tough year. So, I just don’t know if you could help us go towards what type of assets took on most of the marks and maybe if there has been some recovery in January so far. Thank you.

Yes, I look at it, appreciate the question. I guess tough for us to talk about the public BDC. They have not reported earnings yet. So I think we don’t want to get in front of that and again given the fact they are public.

Okay. Maybe a….

It’s the de minimis amount around. It wouldn’t be fair for us to kind of get in front of them.

No problem. No problem. One, this is going to be the easy one, we had the temporary closing of the SEC, I am sure there is a pipeline for them to get through, but is it still January so – or at least for a couple of more hours. What – do you see any impact on first quarter or do we have enough time to kind of get through whatever would have been gotten through for you guys?

No, more broadly speaking, the government shutdown has had a very small impact if any on the portfolio at large. I mean, even within our DE portfolio, a couple of companies touch federal contracts or things like that. And so they were backed up for 30 days, but from a overall standpoint, we will have a virtually nonexistent effect on anything that rises to the AGM level.

Appreciate it.

Good. Excellent.

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

Hey, thanks for taking the follow-up. Just wanted to circle back on your change to kind of focus on the DE going forward as your primary earnings metric? Can you just elaborate a little bit more in terms of what we can expect in terms of disclosure changes? Will you guys be putting out an updated 8-K with a new sort of income statement and are you still planning to show ENI, what can we expect there?

Yes, Mike. So we are still working through that. I think you should expect that we will put out an 8-K that formalizes the changes we are announcing well in advance of publishing our next earnings.

Okay, thanks.

And that concludes the Q&A portion of today’s call. I will now turn the floor back to Gary Stein for any additional or closing remarks.

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

Thank you, ladies and gentlemen. This does conclude today’s Apollo Global Management’s fourth quarter and full year 2018 earnings conference call. You may disconnect your lines at this time and have a wonderful day.