Good morning, and welcome to Apollo Global Management Second Quarter 2022 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 open for questions. Please limit yourself to one question and then rejoin the queue. 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 also 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 in 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 a solicitation of an offer to purchase an interest of any Apollo fund. I would now like to turn the call over to Noah Gunn, Global Head of Investor Relations.

Thanks operator and welcome again to our call this morning. Earlier today, we published our new earnings release and financial supplement on the Stockholders portion of our website. Additionally, for those who are able to tune-in live, we have the presentation and video replay of the Retirement Services business update we hosted in June available on our website. For the second quarter, we reported recorded quarterly fee-related earnings of $341 million or $0.57 per share and spread-related earnings of $442 million or $0.74 per share, which together totaled $783 million or a $1.30 per share. We also reported normalized SRE of $535 million or $0.89 per share which was also a record and increased 10% quarter-over-quarter. In total, we reported adjusted net income of $566 million or $0.94 per share. Joining me this morning to discuss our results in further detail are Marc Rowan, CEO; Jim Zelter, Co-President; and Martin Kelly, CFO. With that, I’ll now turn the call over to Marc.

Thank you, Noah, and good morning. This is among my favorite weeks. It's the week when our next class of associates join Apollo and we do our best to integrate them into our firm and our culture. And it's also a good chance for us just to step back and really synthesize for them the things that make our firm unique. And there are three that I always focus on. The first, our business, in fact, our industry, is built on the proposition of excess return per unit of risk. We're not in the AUM business. We're not in the fee business. We're in the business of providing clients excess return per unit of risk. So, long as we do that, the business will take care of itself as it has this quarter and throughout this year. The second, and it's a very different proposition than almost anyone else in our industry, we are an aligned investor. Our retirement services balance sheets through Athene, Athora are among the largest investors in each of our products, side-by-side with our third-party institutional and retail clients. Alignment is something unique in our industry and is something of great comfort to our clients, particularly during periods of market volatility. And finally, and I know it will bring a smile to people in this room and elsewhere, we do one thing really well, purchase price matters. Purchase price matters is a philosophy that starts with the protection of principal and is embedded in absolutely everything that we do. We approach our credit business, purchase price matters. We want to be top of the capital structure, senior secured. We approach our equity business in that we want to buy growth, but we don't want to pay for it. So we're prepared to work hard. The reality…

Thanks, Marc. Our second quarter results showcase that virtuous flywheel effect we're witnessing across our business as it relates to capital formation, debt origination and deployment. We generated very strong quarterly inflows of $36 billion, including $24 million from asset management and $12 billion from retirement services, and the quarterly total would have been nearly $50 billion if included in the recent Fund X commitments that Marc cited. Our debt origination engine continued to source attractive investments during a very volatile and uncertain time in the public markets, generating $21 billion of volume. And across the platform, gross deployment totaled $40 billion in the second quarter and $175 million over the last 12 months, which demonstrates the scale and breadth of our investing capabilities. There's a lot of great things to talk about across the firm right now, so my remarks this quarter will take you on a highlighted tour around the franchise. But first, I'll start with an important reminder. Many of you know that we have built our business to be resilient and excel in times of market dislocation. We manage long-dated and perpetual capital for our clients, we have a proven ability to find and create value, and we can diligently wait for opportune windows to monetize investments. As Marc highlighted, our approach is grounded in purchase price matters, i.e., price discipline, and the downside protection mentality that permeates everything we do. In moments like this, where levels of uncertainty are high and market volatility is elevated, we often will put significant amounts of capital to work as we did in the second quarter. We see a growing pipeline of attractive investing opportunities to deploy the $50 billion of dry powder we have across our yield, hybrid and equity investing strategies. Starting with yield, our cautious positioning…

Thanks, Jim, and good morning, everyone. Echoing Mark and Jim sentiment, second quarter results highlight the resiliency of our earnings power in a period of heightened market dislocation and volatility. Before diving into the details of the quarter, I'd like to offer a few contextual points around this theme of earnings resiliency. First, our fee-related earnings continue to be driven primarily by management fees earned, as the investment manager for our suite of investment strategies and perpetual capital vehicles. Year-to-date, nearly 85% of our fee-related revenue was comprised of management fees, while only 2% was comprised of more volatile fee-related performance fees. We have de minimis sensitivity to changes in interest rates or spreads, which we've previously highlighted. In a quarter, where equity markets declined by 16%, treasury sold off by 12% and spreads widened, we experienced only an approximate 1% drag on our management fees from market-driven declines. And despite investments that we've been making around the platform in preparation for our next leg of multiyear growth, we're doing so in a margin-conscious way and maintaining a high level of efficiency with an FRE margin level above the peer average. Next, our spread-related earnings are highly durable and possess all weather characteristics since they are largely generated by the performance of hold-to-maturity, investment-grade, fixed income assets, exceeding a predictable and persistent cost of funds, a simple financial model with massive strategic benefit. Over the past eight years, SRE has had a 90% correlation with FRE and historical credit losses have been below industry average, amounting to single-digit basis points per annum. Furthermore, the amount of Athene capital supporting SRE generation will decline over time, due to the increasing usage of third-party CCAR capital via ADAV [ph] given the attractiveness of this earnings profile to sophisticated institutional investors. Given all…

[Operator Instructions] Our first question comes from the line of Glenn Schorr from Evercore ISI.

We're interested in the AAA product. I wonder if I could ask a couple of quick follow-ups on fee structure, liquidity and K1 1089. And then how the securities put over -- at what marks is there a third party involved? Just curious on all that. Thanks so much.

Glenn, thank you. It's Marc. I will be somewhat circumstant to what I can say, because we're not -- this is not a marketing of AAA. But suffice it to say, that essentially what investors are being allowed to do is to invest side-by-side with a roughly $10 billion portfolio of 180 different investments that have been curated specifically for Athene over the past 12 to 13 years. In terms of porting them over and the valuation, Athene has produced audited financials and NAV for as long as we've been having these conversations. And in fact, there are visible marks in every quarter. And so, you should assume that everything was ported over at NAV. In terms of liquidity, for Athene and for institutional investors, they are coming in, and they are essentially not -- they're agreeing not to take liquidity for up to five years. For Athene, as you know, we expect Athene's participation in this to go from roughly $10 billion to $20 billion over the next five years, just based on the forecast of Athene provided at Investor Day. For investors who want more liquidity, there is a slightly higher fee structure and liquidity is limited to 5% per quarter at NAV across the vehicle. Keep in mind that this is a replacement for equity rather than private equity. It has the characteristics on the benchmark, it's benchmarking against the S&P, with historical volatility level more consistent with fixed income. So hopefully, that met -- answered all your questions.

Thank you. Our next question comes from the line of Alexander Blostein from Goldman Sachs.

Actually, Ryan Bailey on for Alex. So regarding the $13 billion that was committed to Fund X, you're expecting record contribution from the global wealth channel. Can you help us think through how much of that $13 billion was reserved for distribution partners? And does it reserve mean the same thing as a typical commitment? And maybe if you could just -- if you could give us some color on who are those distribution partners were sort of categorically that would be very helpful, too, please.

Well, let me just say that the vast, vast majority is the institutional channel, which we know and which historically been part of us, a non-material amount was the non-traditional institutional channel or the global wealth channels. There's four parts to that. But historically, whenever we've gone out to the global wealth channel, they've all come back with commitments well in excess of their allocation. So the big picture is really $13 billion. The big picture is really the institutional business has driven us. Now certainly, as we talk about Global Wealth playing a larger part of our fundraising from 5% to a larger portion over time, this they are participating in Fund X, but it's really an institutional story like it always has been.

Thank you. Our next question comes from the line of Craig Siegenthaler from BofA.

Good morning, everyone. My first one is on cash flow. I'm curious how much capital did you dividend up to Apollo from this three at the insurance entities in relative to the $442 million of spread-related earnings?

Hi Craig, it's Martin. So we're using the same frame that we outlined last year, which is $750 million per year. So we're just clipping away that each quarter, Athene is clearly very profitable in generating cash flow, but it's also growing significantly. And so we would expect that level of cash flow upstreaming to continue at current levels. And we'll evaluate that from time to time. But Athene has massive growth opportunities in front of us, and that's contributed to the $24 billion of inflows so far this year.

Craig, assume it's just evenly over four quarters.

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

Good morning. Thanks. My question is on capital. I guess, Marc, do you still view the stock as the best use of capital here and through that lens as 2Q? Is the 2Q run rate a good guide for what you can do per quarter as long as the price is slow?

Look, we -- I don't want to think we're unique. Every management team thinks their stock is undervalued. We particularly think our stock is undervalued, and we had the flexibility this quarter to buy it back, and we did. As I've said previously, one needs to earn the money to spend before you get to spend it. So we have a framework that we think about in terms of capital allocation, which Martin went through, which is roughly $5 billion for the existing dividend, $5 billion allocated to growth and $5 billion, which we have the potential to be flexible on. And clearly, at these current levels, as there's no lack of unanimity in the room, our stock is the best place for that capital.

Thank you. Our next question comes from the line of Brian Bedell from Deutsche Bank.

I have a bunch of questions on Triple A. I'll just limit it to a couple for now and get back in the queue if they're not answered subsequently. But maybe just -- to be clear on the investment strategy for this, is this very similar to the Athene portfolio that you profile on page 16, so kind of targeting, say, 11% normalized return, and then maybe any commentary on how -- if that's not the case, how this might be managed differently, such as like having a dynamic allocation feature? And then if you're able to talk about the performance fee structure at all in terms of just how we should be thinking about if this grows like you say, Marc to be the biggest fund, how it could be adding to performance fee related fees. And I imagine it's very different for the institutional classes versus the retail classes?

Let me start in reverse. It's not very different. What's interesting here is our approach to this. This is a fund that we started down the road to create for high net worth. And the concept here was to really do something that the market had never seen before. No capital calls, no J curve, $10 billion of aligned capital, some liquidity for high net worth, no liquidity for institutions, no two layers of fees. Athene as a large institutional investor, you should assume strikes the hardest bargain and is generally the lowest fee payer. So we start with the notion that we should not charge fees on top of that. And that the investor should have the single best experience. The way that manifests itself in terms of positivity for our business is, we had $10 billion of capital that is now $15 billion of capital, which is accelerating our investments in platforms accelerating our investments in co-invest, accelerating our investments in new funds. And the underlying economics are simply passed through. It's a flywheel. This is how we scale our business. What was interesting? Although we've done a product for retail, along the way to the retail launch, three very large institutions thus far, have concluded, that this actually meets all of their needs. Diversification by vintage and by product, and no capital calls, no two levels of fees. And so we are fortunate to be able to launch the product with $15 billion of commitments, 10 million in-house and five from three large institutional investors. I'm very optimistic as to how this goes. But like every retail product, it's now up to us to implement and to prove success. I also like that our benchmark here is not private equity. Private equity, as I've said previously, is a fabulous business, but it is not infinitely scalable. What I like about this, is we have lots of opportunities to scale it, because the return targets while I'm not advertising are much more consistent with premiums to S&P 500 and premiums to where we have assumed a normalized rate of return rather than something that begins with a two-handle or high-teens. So hopefully, that's sufficient.

Thank you. Our next question comes from the line of Rufus Hone from Bank of Montreal.

Oh hi. Good morning. Thanks for taking my question. I wanted to come back to the Global Wealth business, and I appreciate your comments on AAA, but -- you've talked about one to two new products per quarter for several quarters. And I was curious how does that pipeline look? And what products are you particularly excited about beyond AAA? Thank you.

Sure. Thanks for the question. So when we were in Investor Day last year, we really talked about having -- we talked about products really in two big buckets: perpetual products and episodic products. And at that period of time, we arguably had three to four products, one in the perpetual area, Apollo Debt Solutions and a couple more in the episodic. Turning the clock forward to 2020 where we are right now. We really have almost nine products in the perpetual, probably a handful more in the perpetual trade. People also may recall that when we did the Griffin transaction, we inherited a couple of vehicles. So really, the product set is growing. It's fraud. We're making sure there's a theme here that that Mark has mentioned we want to obviously execute on what has been proven to garner demand, some yield in BAC [ph] and re-products, but we have a variety of a broader approach that we're bringing, so Very, very happy with not only the feet on the ground in wholesaling and product creation and selling agreements. But the product set is really…

Investors think about the investment, maybe what it competes with as an asset class? And is there any sensitivity there to credit spreads moving in and out?

Again, it's Marc. I'll start at the rest. The answer is no. We run a matched book and we offset the liabilities that we take on in the retirement services business with fixed income at roughly the same time we take them on. Changes in credit spreads do not matter. The initial ADP [ph] was for $3.25 billion. ADP has performed extraordinarily well. As I sometimes joke with some of you, those in particular, who have had a more negative view of retirement services. It's such a negative business that investors compete and pay us fees to be able to invest in retirement services. We expect to go out and raise a successor to ADP fees and where ADP won based on the success and performance of ADP-1, which is well ahead of the benchmark promised investors and would expect that the fund would be somewhere in the $3.5 million to $5 million range, consistent with how we see growth in the retirement services sector in the US.

Thank you. Our next question comes from the line of Gerry O'Hara from Jefferies.

Thanks for taking my questions. I guess with respect to the allocation to alternatives within the Athene portfolio. This is clearly proving to be a strong diversified return stream. So curious if there's any consideration of increasing that allocation? And then I suppose on a related basis, is there any concern of increased regulatory oversight as clearly some of your peers have taken a similar approach? Thank you.

So the answer is, we historically at Athene have run a 95% plus/minus fixed income book, of which better than 90% of that is investment grade. And there is no plan to deviate for that or to take increased exposure to alternative investments. In terms of regulation, retirement services is a regulated business. We have, over the past 12, 13 years, developed the expertise to operate in this business and fully expect to continue to operate in the manner and the methods by which we've operated to date. I think there has been a significant tuition paid, over a better part of a decade, which others who would like to do what we have done are going to need to pay.

Thank you. Our next question comes from the line of Chris Kotowski from Oppenheimer.

Mine were asked and answered. Thank you.

Thank you. Our next question comes from the line of Adam Beatty from UBS.

The question, I want to ask about organic growth in Retirement Services. The business update you pointed out, the historical kind of ability and willingness to shift the emphasis among the four different channels based on prevailing conditions. So assuming your overall target is still good for this year. I'm just wondering, given the distinct backdrop that we have right now, where you're seeing opportunities and where maybe you're hanging back a little bit more? Thank you.

Look, the two strongest channels are clearly the retail fixed annuity channel, which is going as strong as it has ever gone. I mean, I think Jim or Martin cited that applications are up 100% year-over-year. Record quarters -- record weeks almost every week. The other place we're seeing really strong growth is in pension group annuities. The tick-up in rates, the tick-up in spreads have given those entities that were close to being able to close out an older retirement plan, a greater ability to do that. And we're watching that very carefully and had a very strong first six months. We're also seeing good progress on reinsurance, particularly on the flow basis. The one engine that you would expect that is not firing is the FABN market, which is negatively impacted by higher rates and higher spreads. But there's been plenty to do. And the numbers, as you know, are well beyond the record year that we had last year and continue to be very strong, and they're actually quite strong across the industry. This has been a pretty good year for the whole sector. Although, if you don't have lots of excess capital, you're not really able to take full advantage of it

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

My follow-up was asked. Thank you.

Thank you. Our next question comes from the line of Brian Bedell from Deutsche Bank.

Brian?

One moment, while the participant’s line loads. His line will be opened momentarily.

We can move ahead to the next question.

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

Glenn?

Pardon me one moment, while his line loads.

Maybe that's a good place to end it, if we're experiencing technical difficulties. On behalf of our team, I'd just like to thank everyone joining for joining this morning and for your continued interest in our business. Of course, if you -- as usual, if you have any follow-up questions on anything discussed on today's call, please feel free to reach out to us. And we, of course, look forward to speaking with you again next quarter. Thanks, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect.