Good morning, and welcome to Apollo Global Management's Third Quarter 2023 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 be open for questions. Please limit yourself to one question, 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 Web site. 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 will now turn the call over to Noah Gunn, Global Head of Investor Relations. Please go ahead.

Great. Thanks, Donna, and welcome again everyone to our call. Earlier this morning, we published our earnings release and financial supplement on the Investor Relations portion of our Web site. We reported strong third quarter financial results, which included record quarterly FRE of $472 million, or $0.77 per share, and record quarterly SRE of $873 million, or $1.43 per share. Together, these two earnings streams totaled $1.3 billion in the third quarter, increasing more than 30% year-over-year and reflecting solid execution from both our asset management and retirement services businesses. Combined with principal investing income, HoldCo financing costs and taxes, we reported adjusted net income of $1 billion, or $1.71 per share, up 23% year-over-year. Joining me this morning to discuss our results and strong relative positioning in further detail are Marc Rowan, CEO; Scott Kleinman, Co-President; and Martin Kelly, CFO. And one quick plug before we proceed. In a couple of weeks on the afternoon of November 14, we will be hosting a deep dive presentation on our platform origination strategy, a top area of investor focus, which will provide insights into various platforms in detail how, in aggregate, we believe they provide a competitive and sustainable advantage to Apollo in sourcing excess spread. A live video cast of this session will be available through our Investor Relations page. And with that, now back to our regularly scheduled earnings programming. Marc?

Thanks, Noah, and good morning to all. Another great quarter amidst interesting financial markets and certainly a challenging year for many in our industry. Just to highlight performance; quarterly FRE up 29% year-over-year, quarterly SRE 36% year-over-year, margin expansion three quarters in a row now, inflows for the third quarter 33 billion, 125 billion year-to-date, deployment 36 billion, fundamentally momentum both sides of the business. Our business model is very robust, as I will track for you. We expect another 30 billion plus/minus of inflows for Q4, bringing total inflows for the year to 150 billion. The momentum we see in the business tells me we will have an on track continued good performance heading into Q4. Obviously, a quarter is not done yet but everything we see tells us the momentum will continue. In global wealth, which I'll just do a quick shout out to given how hard the team has been working, there are now seven perpetual wealth products in the market today. Scott will go through this in detail. And just to close out, origination volume tracking north of the 100 billion on an annualized level. Fundamentally, everything in the business is working and I believe we're set up appropriately to benefit from the current market. Almost everything in our business works better with higher rates. Credit, as you know, is a much bigger part of our business mix than most of our peer group, something we've built over a long period of time. And as to remind you, we are focused on senior secured top of the capital structure. This is a big difference between what people normally think of as private credit and otherwise. But we want a business that last, one that has duration, one that is set up for a difficult economy, notwithstanding…

Thanks, Marc. Unlike many in the industry, the current market backdrop, marked by higher interest rates, heightened volatility and economic uncertainty is where we thrive. It's good for our core investing businesses where we are asset selectors with a value orientation, not momentum or volume traders. It's also good for Athene's business where higher for longer rates drive more volume and better profitability. And it can be good for our capital solutions business where companies can access creative financing solutions when traditional sources of capital are less plentiful. This is the true power of our aligned asset management and retirement services business model, which should only increase as we continue executing on our growth objectives. As you've heard us say before, the foundation of our business is providing excess return per unit of risk. And this is evident in our strong investment performance. In the yield business, our corporate credit, structured credit and direct origination strategies, all appreciated between 3% and 4% in the quarter and between 12% and 17% over the last 12 months. We've seen particularly strong performance in certain underlying strategies, including Apollo Debt Solutions, which posted a total net return of 16.5% for Class 1 shares over the last 12 months. Performance in our hybrid value franchise also remains robust, with the portfolio appreciating 4% in the third quarter and 11% year-to-date. And in private equity, our flagship strategy appreciated 3% in the third quarter and 16% over the last 12 months, including 22% LTM for Fund IX specifically, as the underlying portfolio companies continue to generate healthy earnings growth and are actively managing inflation by achieving greater operational efficiencies. The portfolio is well diversified and has an average purchase multiple of slightly over 6x, offering significant downside protection should economic conditions worsen. In terms of…

Thanks, Scott, and good morning, everyone. So as Marc previewed, we reported another very strong quarter of results as we continue to execute against the financial targets we laid out at the beginning of this year. Markets have changed quite significantly since then, marked by even higher interest rates and increased economic uncertainty, yet we've remained confident throughout 2023 in meeting or exceeding our initial financial targets for the year, as further evidenced today. With these results, we believe that we're beginning to gain recognition for the predictability, consistency and differentiated growth of our earnings profile, anchored by our two primary earnings streams, FRE and SRE. I'll address five topics in my remarks today. One, earnings growth and outlook in our asset management business; two, the financial impact of the compensation awards we announced today; three, earnings growth and outlook in our retirement services business; four, credit performance in Athene's portfolio; and five, capital allocation priorities. Starting with our asset management business, our 7% increase in quarterly FRE continued to be driven by solid revenue growth and expense discipline. Year-to-date, FRE revenues are higher by 25% against a 21% increase in FRE expenses. Our capital solutions business achieved a new high in the third quarter amid a robust year of growth. We're very pleased with the expansion of this business, which is on track to meet its five-year revenue plan in just two years. We'll spend some time during our platform origination presentation on November 14 discussing the breadth of this business, and it's important to our fixed income replacement strategy. Specific to Fund X in the quarter, management fee growth of 5% included a $24 million catch up for Fund X and its final close, with Fund X fees in the quarter being $14 million higher than the prior…

Thank you. The floor is now open for questions. [Operator Instructions]. Our first question today is coming from Patrick Davitt of Autonomous Research. Please go ahead.

Hi. Good morning, everyone. I know early days, but could you address your view of the potential risks to your business from the new DOL rule published yesterday? And within that, remind us, if at all, how dependent Athene is on distributors that might be charging the “junk fees” they're talking about? Thank you.

Okay. Thanks, Patrick. It's Marc. So what came out yesterday is not much different than what the industry saw seven years ago. Seven years ago, we and the rest of the industry prepared and actually made changes, extensive changes to how products and fees and features were disclosed. And so truthfully, not much new. In terms of your question on exposure of the business, about 10% of our business is through wholesalers. Another 10% is also to accounts but it's through banks that would have a very easy time adjusting to this because they essentially already charged that way anyway. So specifically, roughly 10% of the business is focused and not really worked up about it. This is where we were prepared to be seven years ago. And I think we're still a ways away from a final rule here anyway.

Thank you. The next question is coming from Glenn Schorr of Evercore ISI. Please go ahead.

Thanks very much. I wonder if we could just revisit two things that you said. You gave us good guidance or thought process on next year, so the 70 billion for next year. I'm curious if you could talk about that shift that we saw in the quarter, inflows into Athene were low because the shift over to ADIP. What should we expect of that 70 billion next year? And should we even be focused on it? Because I think in line with this DOL question, I think there's this notion that the retail flows are “higher quality” and some of the other funding agreements are stop gaps. But I wonder if you could talk to the quality of the four channels and if you debunk any of that, and how we should think about that shift going forward?

Glenn, it's Marc. So we've been watching this for the last 14 years. Fundamentally, there is no difference in the quality of any of these four channels. We run a business around cost of funds. Sometimes various channels are attractive, sometimes other channels are attractive. What we're seeing is there's a fundamental demand, not just in the U.S., but everywhere in the world, for guaranteed income. People need retirement solutions. If you look at the vast pools of capital in the U.S., for instance, in 401(k), where there's $8 trillion to $10 trillion, we force people who need returns the most to be daily liquid for 50 years. What we're doing as a country makes little sense. And consumers know that. And so what they've done as soon as they have access to their funds, increasingly, they are in higher rate environments, seeking out guaranteed lifetime income. The demand we're seeing on annuities, either directly or through reinsurance is fundamental. Reinsurance, again, no different to us than direct business other than it tends to be in markets or in market segments we don't serve or don't serve yet. So I don't feel there is any difference one way or the other in the way these things go. As it relates to the broader question, we have a choice. We have a choice of the capital intensity of our business. If we want to be more capital intensive, we put up $0.08 to $0.10 of every dollar. And we retain 100% of the business. If we do that, SRE grows faster because we're retaining more business. And it grows faster because we tend to earn 15% year-in and year-out on the capital that we put up. Really good option. We have, as you know, made a business decision that on the…

Thank you. The next question is coming from Michael Brown of KBW. Please go ahead.

Hi. Good morning. So I appreciate the commentary on the spreads within Athene. I guess one thing I was trying to think through is the higher short-term rates have been a meaningful tailwind for the earnings on the floating rate asset side. As we perhaps get closer to the end of the Feds rate hiking campaigns, are you thinking about taking any actions there to reduce that downside risk if short-term rates do start to come down? Thank you.

So we are plus minus 30 billion of net floating rate assets. If you look at the growth of the business over the next two or three years and you consider the mix of our liabilities, we will want to be two, three years from now 30 billion of net floating rate assets. Having said that, we probably are relative to our liability position 10 billion to 15 billion excess floating rate assets over what we would want to or consider a long-term prudent position. You should expect that we will take action over the near term to reduce the short-term mismatch reflecting that, and that's factored into everything that we've discussed with you today.

Thank you. The next question is coming from Alex Blostein of Goldman Sachs. Please go ahead.

Thanks. Good morning. I was hoping we could dig in a little bit more into some of the retail products you mentioned, which seem to have pretty good momentum here in the quarter, in particular AAA. I know the product is a bit complicated. So maybe give us sort of a breakdown of composition across various channels and sort of fee paying AUM between kind of third party and Athene as well as how kind of gross sales conversations are unfolding on that side of the channel? Thanks.

Sure. So, on the AAA side, we've been actually very pleased at how sales are progressing there. So we had our best quarter yet, a little over $700 million in the last quarter for AAA. So week-by-week, month-by-month, we are getting AAA on to more selling platforms, more sales agreements. So progress is good there on the retail side. We expect this to continue grow up, as you know. The retail business is all about getting on to more platforms, more bankers, more selling agreements not only AAA but all our products, ADS, ARIS. This is how we are progressing. This is why in my prepared comments, I just talked about we're finishing up year two of our global wealth focus and we just see so much more positive momentum as we get these selling agreements signed up in place, product-by-product, area-by-area, region-by-region, just a huge opportunity. So really positive momentum across all the products we have in market right now. Like I said earlier, we have seven product families out there right now. We have a few more coming in 2024 where at that point we feel like we'll have a fairly complete line up across the asset classes. And so yes, good progress.

So I'm just going to leave you with this following sense, Alex. What we're trying to do here is similar to what we're doing in the rest of the business. As you know, I've said publicly, certainly for high net worth families, family offices, I think they will be 50% plus alternatives over the next five years. And we're seeing that kind of uptake and traction. The difference between where we are and where I think we're going to be is only education. When we say we're on a platform, one of the big private banks, it may be 5% or 10% of the financial advisors. This is an education, an evangelical activity with more and more converts every day. And so if you take AAA, and I know you premised your question as a complex product, I'll make it an easier product. You can buy the S&P 500 at a 50 PE or you could buy roughly the same historical return at a much higher sharp ratio and give up liquidity. That is the choice we're actually seeing investors make. And while private markets are something that many on this call and we are very familiar with, the vast majority of investors thinking back over the 40 years, they've been doing just fine, owning the S&P and the 30-year treasury. And my point of starting where I started is I don't think with the absence of tailwinds, people are going to get the same performance. I don't think what I'm saying is all that controversial. We're now just in a period of education where people consider what does the market look like? How do I invest without tailwinds? What does it mean that public markets are less liquid on the way down? What does it mean to have debanking?…

Thank you. The next question is coming from Michael Cyprys with Morgan Stanley. Please go ahead.

Hi. Good morning. Thanks for taking the question. Just wanted to circle back to your commentary, Marc, on the DOL proposed rule. I was hoping you might be able to just elaborate a little bit on what aspects of the rule you find most troublesome for the business? And then what specific actions to products and features can be taken to address the rule? And then I think you mentioned about 10% of the business may be most impacted. I think it was in the wholesale channel. But what are other levers that you might be able to pull such as maybe altering the distribution strategy and maybe even thinking about going direct, because it doesn't change the overall demand side to your earlier point that retail investors still have a demand for income.

Okay. So, look, it starts with investor demand for guaranteed lifetime income or guaranteed income is going up. And I think investors will ultimately seek out places to do that. Historically, products like annuities have been very complicated because they offer a variety of options and other things and therefore they have had more of a complex sell. Therefore, you have [ph] needed advice and that advice has therefore a more expensive distribution than something you can buy off the shelf. I remain skeptical on direct distribution. But I also see the proliferation of distribution. Increasingly, financial products like guaranteed income are being sold through the banking system, are being sold through RIAs. And if you focus in on the specific issue, these are not issues of the closure. They're actually not issues of product features. We and many in our industry have already made the changes going back seven years, because that was just best practice. I think there will be more pressure on fee. That clearly is what it's at. And we can have both sides of that. I'm not going to say it's good or bad. But I've watched in other places around the world where the focus has been on fee. Take Australia, you have the biggest or the best retirement system anywhere in the world, 3.5 trillion for 28 million of population. Well, they have a big problem there. They actually legislated out all the fees. So now there's no advice. No one provides advice. And so at 65, when people get their big lump sum distribution from the superannuation product, they don't know what to do with it, and people are dying between 35% and 40% of their retirement income intact. The government doesn't like that, because there's been no advice on what I'll call decumulation. How do you set yourself up to live through however long you're going to live given increasing life spans? Eventually, I believe we're going to come to a sensible place that may be lower fee and distribution. Truthfully, it doesn't bother me in the slightest bit, a small piece of the business. I don't think this is going to result in fundamental changes in distribution. I think it may change how product is priced, and that's okay.

Thank you. The next question is coming from Brian Bedell of Deutsche Bank. Please go ahead.

Great. Thanks. Good morning, folks. Thanks for taking my question. Maybe just to zoom in, Martin, on the FRE guidance, the 15% to 20% next year. For the higher end of that or getting close to the higher end of that, would it be capital markets or capital solutions fees is the biggest swing factor? And then if you could just comment on the trajectory of that, definitely certainly much better again this year than last year. And I think you're -- maybe if you can just confirm, I think your guidance was for flat solutions fees baked into that 15% to 20%. So maybe the trajectory of that and what drivers would increase the solutions fees a little bit faster?

Great, Brian. So what I said is that's sort of current best estimate, obviously. And so we're focused on all the fundraising initiatives Scott raised. Putting money to work in an environment which we think is conducive to our investing orientation, and then continuing to build out the capital solutions business. And so any -- we've made assumptions around each of the three of them, any of them could be a plus or minus to the guidance I gave. And so we'll talk more about capital solutions on the 14th. That's one of the objectives of the day to connect that back to the origination strategy, and our fixed income, origination and distribution focus. But yes, in the comments I made, we are assuming it's flat. Is there upside? Potentially, but we're really, really happy with the growth of the business. A five-year plan in two years is pretty heroic. And so we're focused on building out that business further and repeating the success we've had. So with a primary emphasis on credit and then building it out to other -- to co-invest over time.

Thank you. The next question is coming from Brennan Hawken of UBS. Please go ahead. Brennan, please make sure your phone is not on mute.

Thank you. Thanks for taking my question. I appreciate it. Sorry if this is a bit remedial, but cost of funds came down quarter-over-quarter. I don't know of another company in financial services where cost of funds came down. So could you maybe speak to what drove the lower cost of funds, whether or not there was any one-time items and how sustainable that is?

Yes, we had -- you need to look at the normalized net spread. That's why we try to focus on the net of the two. There was a benefit in cost of funds for the quarter that we telegraphed last quarter related to the Venerable reinsurance transaction. And so that impacted cost of funds, which we then normalized out in the net spread. So I would look at the 165 basis points as the guide is our current best view and it takes account of things like that, the Arco buy down during the quarter, which are sort of episodic but not recurring.

But I'm going to use this to make a point, which I've made previously. When you originate new product, you originate product that is protected by surrender charge, market value adjustment, or in the case of PRT is fully locked in. You should, therefore, be willing to have a higher cost of funds for fully protected product because you can invest against it. It gives you longevity. It gives you certainty. We have four different channels and we look at each of the four channels on a regular basis and we try to keep our cost of funds low because we know if we have a low cost of funds, if we're not good investors, we can earn spread. And if we're good investors, we can earn a lot of spread. What's happened in our market is you now have a number of entities who have seen what we have built and are late to the game. The way they intend to get into this business or trying to get into the business is to buy back books of business. Buying a back book of business with degraded surrender charge, integrated market value adjustments in a low rate environment may be sensible, because in a low rate environment, the contract rate is above the rate in the market, therefore you expect the book to behave predictably. But in the market we're in right now, for someone to buy a secondary book of business and pay for a cost of funds in excess of that of retail kind of tells you all you need to know about the quality of the business that people are buying. And I encourage you to push as hard on cost of funds across the board. It ultimately simplifies what is a very complex business. We're in the spread business. Having low cost of funds is really important.

Thank you. The next question is coming from Ben Budish of Barclays. Please go ahead.

Hi. Good morning. And thanks for taking the question. I wanted to ask about the old return of the Athene business, it's been below the sort of normalized 11% for several quarters. Anything in particular to call out there? I know we always spend some time trying to triangulate what it might look like and there's many kinds of components to that. Any color on sort of the key drivers over the past year or so. And what do you think might get that back to sort of the normalized expectation going forward? Thanks.

Sure. As you know, the old portfolio is made up of 150 different positions, about half of which relates to our origination platforms, about a third -- the remaining quarter is about funds and other I would say hybrid type products. And then the last quarter would be other bespoke and direct investments. Overall, we still look at that portfolio as being, call it, 12% plus the last couple quarters. Given the environment, there's been a little bit of slower appreciation, as you've just seen in the broader market, but really no fundamental concerns there about what's in that. As we've always said, that portfolio will sort of deliver you 8 in a really bad year, 18 in a really good year and 12 to 15 expected. And we see nothing deviating from that.

Thank you. This brings us to the end of the question-and-answer session. I will turn it back over to Mr. Gunn for closing comments.

Great. Thanks for your help this morning, Donna, and thanks again everyone for joining the call. Just a couple of reminders. We would encourage you to participate in Athene's fixed income investor call next Thursday, November 9, and then our origination deep dive that we mentioned on November 14. If you have any questions regarding anything discussed on today's call, as usual, please feel free to reach out to us. Thank you for your time.

Ladies and gentlemen, this concludes today's event. You may disconnect your line or log off the webcast at this time and enjoy the rest of your day.