Good morning and welcome to Apollo Global Management's Third Quarter 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 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 in 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 earnings release and financial supplement on the Investor Relations portion of our Web site. For the third quarter, we reported fee-related earnings of $365 million, an increase of14% year-over-year or $0.61 per share and spread-related earnings of $578 million or $0.96 per share. Together, fee and spread-related earnings totaled $943 million or $1.57 per share. And in total we reported adjusted net income of $801 million, or $1.33 per share for the third quarter. Joining me this morning to discuss our results in further detail are Marc Rowan, CEO; Scott Kleinman, Co-President; and Martin Kelly, CFO. And with that, I will turn the call over to Marc.

Thank you, Noah. Good morning to all. Apologies in advance for sounding like a losing Texas football coach. I will do my best. I thought where I'd start is really to start with the macro or the market backdrop. I have a chart on my office wall that traces the movements of the S&P falling the 2008 financial crisis, and following the beginning of tightening in this round by the Fed. They are almost on top of each other. That is not to imply that we are going to have or experience the same sort of events that followed 2008, but I do believe it is important to comment on market psychology and investor sentiment. What did we expect would happen when we printed $8.1 trillion for the country? Well, exactly what should have happened, happened. Assets almost across the board elevated in price to multiples and levels we had never seen before. Risk was up, everything went up, interest rates went down. Now that we have begun tightening, we are doing nothing other than resetting to more normal levels. We act in the market backdrop is somehow that low interest rates and excess liquidity are the norm. They are not. Certainly not over my nearly 40-year career and not over any sort of long-term investment cycle. We have an entire generation of investors, investment analysts who have really grown up just seeing the market go in one direction. And we now all know it goes both ways. If I just chart what's happened so far this year, venture capital valuations are down 60%. Nasdaq down 30%, S&P down nearly 20%, Barclays AG down 17%. This is an amazing time for alts, alternatives, particularly for credit. Investors have now discovered that everything is correlated to the Fed. And they are…

Thanks, Marc. Apollo is well known for having the ability to thrive in challenging and complex economic environments. Over the past decade, amid a low interest rate backdrop, we worked hard to source attractive investment opportunities, and capture excess returns for our fund investors and retirement services clients. We were measured patient and preparing along the way. But now we've entered into a particularly favorable backdrop for our investing strategy to shine, we're on our front foot in a market that is ripe with opportunities, and we're methodically putting capital to work across our platform. In credit, the areas where we do the majority of our business, which is fixed income replacement, senior secured top of the capital structure are still open, and the recent market dislocation is creating an abundance of attractive deployment opportunities for those who can invest with size and scale. We're seeing pre-financial crisis pricing frameworks, allowing us to generate higher returns with less credit risk. For example, the yield on the CCC index one year ago is now the same as the yield on an Investment Grade index. We're buying new issued 10-year IG corporate paper between 6.25% and 6.75%. And in sterling, there's A rated opportunities yielding 7.25% to 7.5%. These attractive high grade assets are finding a home across our platform, particularly at Athene where the investment portfolio is directly benefiting from rising rates and wider spreads. In the third quarter, the weighted average yield on total fixed income purchases for Athene exceeded the BBB Corporate Bond Index by more than 80 basis points. In another recent example, our size, scale and ability to move quickly allowed us to step in and provide stability to the U.K market in response to LDI-related for selling at a favorable entry point. Trading volume skyrocketed to…

Great. Thank you, Scott, and good morning, everyone. So echoing Marc and Scott's sentiment this morning, this is the type of environment where Apollo really shines. Our key business drivers, including capital deployment, investment performance and fundraising, remains strong. And our financial results reflect continued momentum across our primary earnings streams. The stability, quality and recurring nature of our earnings power provides comfort in these volatile markets. Management fees accounted for more than 80% of fee-related revenue, both in the third quarter and year-to-date periods. And we experienced only an estimated 1% annualized drag on our management fees quarter-over-quarter from market value declines. Importantly, fee and spread-related earnings accounted for approximately 95% of total pre-tax earnings in the third quarter. As Marc said, we're on track to meet our 5-year targets that we laid out at Investor Day last year, which includes more than doubling both FRE and total earnings. Starting with our AUM results, third quarter AUM reached $523 billion, increasing 2% quarter-over-quarter and 9% year-over-year. Inflows totaled $34 billion in the third quarter as we raised significant amounts of capital from both our asset management and retirement services clients. Total outflows of $10 billion in the quarter included $6 billion from normal course of same runoff, which increased from the prior quarter due to several expected funding agreement maturities as well as the first of its kind partial repurchase of existing notes in an effort to tighten our trading spreads. Realizations of $10 billion, included $6 billion related to the reallocation of a limited partner's existing mandate to other strategies. In a similar dynamic to last quarter, most of the third quarter negative market activity was driven by unfavorable FX translation from Athora's portfolio due to a depreciation of the euro. Moving to FRE, we reported third quarter…

[Operator Instructions] Our first question comes from the line of Patrick Davitt of Autonomous. Please go ahead.

Hey, good morning, everyone. I have a follow-up question on the Wealth Management business. I appreciate all the color, Marc, you gave us there. Could you give us a little more specifics on how the flows looked in all those major products in 3Q versus 2Q? And then more broadly, are you still confident in the ability to launch one or two products a quarter, ramp that business through much more volatile markets?

Yes, hi. This is Scott. So, yes, flows have actually been building quite nicely. As we had told you, we expected about $6 billion of inflows this year, the first year of our global wealth activities. And it's been building sort of steadily quarter-on-quarter. And -- so we feel quite good about that number, in all likelihood exceeding that number. That has been coming in through ADS, as Marc talked about. This quarter, we launched AAA. We just launched ARIS, our real estate product. And then, of course, some of the drawdown funds that are working through this global wealth system as well, namely Fund X, has been moving forward. So continue to go quite well in that area. We do have some exciting launches early next year. We've talked to you about our ensuring that products that we'll be launching next year as well as a couple of others that will be coming more midyear. So yes, feeling very good about where we are going. And really, our first year in earnest in the global wealth channel has been a real success.

Thank you.

Thank you. Our next question comes from Michael Cyprys of Morgan Stanley. Please go ahead.

Hey, good morning. Thanks for taking the question. I wanted to circle back to some of the comments Marc you had made, and Scott as well. Marc, you had referenced the U.K. market hiccup as maybe being the first of many. I was hoping you might be able to expand on that what you see potentially coming where the next pickup might arise, what might cause that how? Apollo might be able to capitalize on that opportunity? And then, Scott, you mentioned about distressed investing, that you're preparing for that. Can you maybe just expand upon your outlook and how you see that playing out this cycle?

Why don't I start on the macro side, and then I will let Scott add some color. So if you go back to Dodd-Frank and the changes that happened in our system, beginning in 2008, one of the changes that happened was an increase in the, I will say, penalty of the cost of providing trading capital. By our estimate, we have roughly the same amount of market making capital in the system today as we had in 2008, with markets significantly larger. One of the things we are seeing across every market is a decrease in liquidity, and this is not just a structured product phenomenon, this is a treasury market. There was an article yesterday talking about that. And as I like to say to our clients, we now are in a market where there's only liquidity on the way up. There is not liquidity on the way down. The public markets are less liquid. The private markets are more liquid. And so we are seeing a gradual trend toward increased private liquidity, decreased public liquidity. And as a result, when you have short-term capital calls or short-term phenomenon, you end up with all manner of market-based kind of illiquidity, particularly when everyone is looking for the same door at the same time.

Yes. Let me just add on what Marc said, while we can't necessarily predict exactly where those movements will come, 14 years of 0% interest rates has led markets to pursue increasingly levered strategies to try to find yield and return. And now that we are in a rising rate environment and those levered trades have to unwind, that they all happen at once, right? The LDI transaction that I referenced didn't -- there was nothing inherently wrong with the CLO tranches we were buying, it's just that happened to be the most liquid asset that those entities had to liquidate in order to cover their leverage and margin issues. And so those are the types of things -- so being ready, having the breadth and scale of platform to take advantage of that when you see those cracks happening, that's the opportunity.

You have to, again, propitiate [ph]. We've lived in 10 years of benign environment, with increasing liquidity and low rates. And this mismatch of daily liquid products, with non-daily liquid assets, is across our financial system. We saw it in March of 2020, in the beginning of the pandemic, where it happened in open enter mutual funds and ETFs. We've now seen it in LDI. And we will continue to see that because I step back again to the macro. Our system is designed today such that things are only liquid on the way up there, not liquid on the way down. And if you have any sort of event where investors all run for the same door, at the same time, there is no longer the dealer capital in the system to serve as a buffer to allow for usual business as usual price expectations. To be willing, to be able to participate in that market, you have to have not done something over the past 10 years. You have to have not fully invested your balance sheet, fully deployed your capital, try to maximize your earnings in a period that was very easy to try and do that. And so what you find is many investors, many institutions today, are offsite. They are essentially fully deployed. I think about the insurance industry and the publicly traded insurers over the past decade. U.S. and Europe have raised closer to 0 than $1 billion of capital and have paid out roughly 90% of their current market cap as dividends. That means people are not saying overexposed, but they're not in a position where they are net buyers and large size on market dislocation. We try and run our European, our U.S. business and our fund businesses, such that in the -- once a decade, once or twice a decade opportunity, we can be really large buyers of mispriced risk. And to do that, you have to be patient every day. And I come back to you with the hardest thing to do running a competitive investment firm is not to chase the hot dot, just to sit and do nothing and wait.

And Mike, just to quickly answer your distressed question. So as you look at the credit markets right now, if you were to look at the indexes per se, we are certainly not in distressed territory yet. Although, name by name, you are starting to find some interesting situations moving in that direction. Fund X has started to accumulate positions in a few names so far, but our watch list is -- stretches into the hundreds. The key -- as I've said in the past, the key to successful distressed and distressed investing is to be ready, right? When the markets move, they move, and you can't start analyzing your names, your credits at that moment. You have to have fully built out investment thesis around not only which names, but where in the capital structure or what prices you're interested in investing. And our teams are, at this point, fully sort of built up and prepared awaiting for those moments to happen, which, I mean, nobody has a crystal ball, but we will probably roll into early next year when you start to see that happen.

Thank you. Our next question comes from Finian O'Shea of Wells Fargo. Please go ahead.

Hi. Good morning. Thank you. A question on the Credit Suisse SPG business. Can you talk about the potential or expected impact to your direct origination volumes?

It's Marc. I think it's too early to say what direct origination volumes would be. But I will come back to what I see as the macro opportunity, and this is how I frame the opportunity. Dodd-Frank, sufficient in the accompanying regulatory reform in Europe, shrunk the size of the banking system, made more of the banking systems products, investment products. The way I see U.S. consumers and companies banking today is through the structured products market, through people like us and like Credit Suisse. I believe that the structured product market can be the size of the corporate credit market. And for us, this is a slice of it. This is the top of the capital structure, generally AAA, AA, and it has relationships with 200 different entities. The transaction will initially -- is a vision to initially be funded by ourselves and by PIMCO. And it is our job, not just to take something that is already of size and scale, but to grow it from there. So I think it's early to predict how much origination will come out of this. But suffice it to say, it's going to be up to us to build a franchise around this and to retain the clients and the people necessary to go do that. But we are very optimistic, and we would not have leaned in with all of the resources that we did if we didn't think this was a needle mover with respect to our origination capability.

Thank you. Our next question comes from Rufus Hon of BMO. Please go ahead.

Hey, good morning. Thanks very much. I was hoping you could spend a minute on AAA specifically. And you mentioned last quarter that you think this has the potential to be the largest single product or fund for Apollo. So how are your conversations progressing with institutions and what do you still need to do in order to get this into the retail channel? And when could we start to see flows from retail come in? Thank you.

So it's Marc. I will come back to you. So we launched with approximately $10 billion from Athene, $1.5 billion from SuMi TRUST and $3.5 billion of other institutional commitments. If I look at things that have come out of global wealth and retail, I don't have the exact number in front of me, but it's something $200 million, $300 million. I would expect us to cross the $500 million, $600 million of new money beyond that by year-end. But we really will see -- we are now accepted for wealth distribution channels on a number of platforms, really focused on the first quarter, and I think you will see growth in '23. It is now up to us to take a product that we think makes sense and explain it to the market and prove out success. So it's now the hard work is on us. But I step back, we are offering investors side-by-side alignment with us for de minimis or no incremental fee on a fully diversified, no J-curve portfolio, where they have liquidity, 5% a quarter, and we do not. The initial conversations have been very encouraging, but it is now up to us to execute.

Thank you. Our next question comes from Alexander Blostein of Goldman Sachs. Please go ahead.

Hey, good morning, everybody. Thanks for the question. I wanted to circle back on the capital return philosophy. The platform has gotten much bigger you guys are exceeding your near-term earnings expectations and the excess capital continues to build. So I guess, near-term, I think, Martin, you mentioned that you guys were blacked out in the quarter, and that's one of the reasons why you couldn't do much for buybacks. Was that to Credit Suisse or something else? And I guess more importantly, as you look out into 2023 with kind of the dynamics that I mentioned, what are your expectations for total payout between dividends and buybacks? Thanks.

So we were restricted. I won't go into the reasons we were restricted, but we were not able to buy back more than we did, which is a de minimis amount in the quarter. If you look at what we've done this year, we've actually spent about $1.8 billion between the dividend and strategic investments, and that included about $200 million of buyback in Q2. That's sort of a -- and we earn our way into the $15 billion of investment capacity over time. So you need to own it to spend it. As we look at our capital uses around the system, Athene is growing more rapidly than we thought. And $1 of growth in Athene is highly accretive in terms of export through FRE and SRE. And then we also believe that $1 of capital spent to buy back stock is also very accretive given our earnings expectations. So I think, Alex, you'll see us do both. It's a balance. Part of the balance is the role that beta [ph] plays as the equity [indiscernible], which is -- which provides important leverage to earnings without capital. So we will return in the early part of next year with more around what we expect the capital return plans to be. But I think you should expect us to see us do both lean into growing Athene because it's highly accretive and buy back stock. And then at the same time, we will continue to look at strategic growth alternatives around the system, including some of what we've done this year.

Thank you. Our next question comes from Brian Bedell of Deutsche Bank. Please go ahead.

Great. Thanks. Good morning, folks. Similar to AAA, similar question on Apollo Realty Income Engine Solutions, the new non-traded REIT product, can you talk about how you see that being differentiated in a market where more of these products are beginning to come out? And then maybe just also a comment on the retail sort of risk off behavior that we are seeing in the market? How are these conversations resonating? And do you expect -- do you think you need a risk on behavior to accelerate sales in the retail channel? Or do you think your story will really resonate as a differentiator and therefore, generate organic growth based on that?

Yes. This is Scott. I will answer both of those. On the real estate product, we believe we do. Like every investment product we have, Apollo takes a slightly different approach than the rest of the market. A more value-oriented purchase price matters approach really seems to be early resonating with some of the channel partners that we've been talking to as we get this product launched. So I actually do think we have a differentiated product that should start to gain some real traction. As far as the market itself, the Global Wealth and retail market, look, fortunately for us, we are starting our journey this year in many of these products. So we have only one direction to go, which is up. And so while we do know that others have reported, I think, some suppressed or depressed volume levels, that's not what we are seeing right now. We are moving in kind of an up and to the right type of trajectory. I think it also helps the fact that we are building these portfolios today in a '22 rate environment and asset value environment where we are not loaded with, what I'll call, top of the market, huge asset purchase is top of the market in '20 and '21. And that I think investors see as a real opportunity to put dollars to work and then start putting dollars to work in a really attractive way. So all in all, like I said, we feel really good about where we are headed, albeit starting from a much lower base than others. Feel really good about where our global wealth business is headed.

Thank you. Our next question comes from Benjamin Budish of Barclays. Please go ahead.

Hi, there. Thanks for taking my question. I wanted to ask about the disclosure on the annualized outflow rates in the insurance business. It looks like the policyholder driven withdrawals hasn't -- the rate in the quarter, it wasn't really changed over the last 12 months. I'm just curious how that kind of compares over a longer time horizon? And then you mentioned some kind of seasonality with the maturity driven contractual outflows. I'm just curious if the normalized rate should look more like the 2.5 or so we saw over the last year? Or you could kind of give any color on that, that would be helpful. Thank you.

Yes, Ben, you're exactly right on the first piece. So I think of this as sort of contractual or within our control is sort of one category. That will be more volatile. And then there's policyholder driven, which is sort of behavioral. And the policyholder driven, you should always expect that there's some amount of policyholder withdrawals and outflows. And we had a 7% annualized rate in the quarter. We had a 7% annualized rate for the last 12 months. It's in line with our plans. And policyholders access their policies to get cash for a variety of reasons, that's just part of the business. So we are not seeing any real change in that relative to history or our expectations, and that's the higher focus point. The contractual is a combination of both some particular funding agreements maturing. And we were in the market, as I mentioned, buying back funding agreements during the quarter, and that was sort of a decision that we made. So that number -- funding agreements tend to have a shorter duration to them. And so you do need to be in the market issuing funding agreements, and we will access that more fully when the market is there. But we're much less concerned about that. That's a market where we're a leader in and we've got good names and spreads. We've provided that extra disclosure on behavioral surrenders to provide more clarity and sort of comfort around that piece of the outpost.

Thank you. Our next question comes from Gerald O'Hara of Jefferies. Please go ahead.

Great. Thanks for taking the question. Perhaps a tough one, but clearly a strong quarter from a transaction fee environment or a transaction fee, I guess, reported number. Is there anything you can sort of give us a sense of where the baseline for this might be? Or perhaps just kind of what to look for in terms of kind of puts and takes from a backdrop in the environment to kind of help us build this on a go-forward basis?

Yes. Look, so as I alluded to in my prepared comments, the transaction fees are inherently -- there is an inherent up and down in that business line. But I would think of it more as an upwardly sloping sign curve, right? In any given quarter, I can't tell you does the transaction close on this side of the quarter or the far side of the quarter. But I do know, given the scale and breadth of what we've been building that we are step functioning the volume and capacity -- the capacity to earn and generate fees on an increasing basis. And so we do see that trajectory moving. As you know, we put out a 5-year target of $500 million of revenues. As Marc alluded to, we will be right around $400 million for this year. So we are moving that upwardly -- we are moving up that slope, I'd say, even quicker than we had originally anticipated and expect that to continue to chug along. So like I said, it's a -- you can't predict any one transaction in any one quarter, but as your breadth and volume grows, you do see that trend of upwardly sloping.

And that concludes the Q&A portion of today's call. I will now return the floor to Noah Gunn for any additional or closing remarks.

Great. Thanks, everyone, for joining us this morning and for your continued interest in Apollo. If you have any questions on anything we discuss on today's call, please feel free to reach out to us, and we look forward to connecting with you.

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