Good morning, and welcome to Apollo Global Management's Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions]. 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 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 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 website. And in short, fourth quarter results rounded out an exceptionally strong year for both our asset management and retirement services businesses. Our 2 primary earnings streams, fee-related earnings and spread-related earnings, grew more than 25% to a record $4.9 billion in 2023. Combined with principal investing income, HoldCo financing costs and taxes, we reported record adjusted net income of $4.1 billion or $6.74 per share for the full year. One change to highlight in our financial reporting included with this morning's results. Beginning this quarter, within retirement services, you'll see spread-related earnings excluding notable items. And further down the page, we provide additional information highlighting the delta to arrive at our long-term return expectation for Athene's alternative investments. This information is useful in order to understand how we think about Athene's earnings power on a multiyear basis excluding quarterly mark-to-market fluctuations. And importantly, this change has no impact on historically reported SRE or the magnitude of historically reported notable items. So joining me to discuss our strong results in more detail and outlook for the year ahead are Marc Rowan, CEO; Scott Kleinman, co-President; and Martin Kelly, CFO. And with that, I'll hand over to Marc.

Thanks, Noah. And it's my pleasure to actually walk through what was a very strong year both in growth and execution. If you had told me at the beginning of the year that we were going to grow 25%-plus in FRE and 26% in SRE and that we would do that successfully, we would be doing a victory lap here; and I assure you we are, in fact, doing that victory lap. Those ranges, while I wish they were recurring every year, are not the normal expectation you should have for the business. We've consistently guided all of our investors to what I believe and we believe is a long-term growth rate in FRE, which is 15% to 20% in a non-flagship year; and to low double-digit growth in SRE. 2023 was truly exceptional. Recall that, particularly in our SRE segment in our retirement services segment, we are not a near-term profit maximizer. 2023 was extraordinary. We ended the year holding more than $12 billion of cash. We also used the very strong results to begin the creation of a countercyclical portfolio, which had us for the first time in a long time make a significant move into treasuries. While this costs us near-term SRE, it gives us flexibility to redeploy into very strong origination volumes, which you will hear about. In the third quarter, just -- excuse me. In the fourth quarter, just to highlight how strong originations volumes were, we did north of $30 billion of originations. We hope to continue up that pace. And having a pile of cash and a treasury portfolio will allow us to continue to grow SRE in the low double digits, which is what we seek to do. Away from earnings. Margins were up over 200 basis points. AUM hit a record…

Thanks, Marc. Echoing Marc's sentiment. We entered 2023 focused squarely on executing the growth plan we set forth, and we achieved those goals. Both our asset management and retirement services business proved resilient and often opportunistic as we navigated an uncertain investing backdrop, a changing rate paradigm and an evolving financial ecosystem. One thing that stayed constant, though, was our commitment to delivering excess return per unit of risk for our clients. Investment performance across our product suite was strong, with particularly robust returns in certain yields and hybrid strategies. For example, our direct origination portfolio appreciated 20% over the full year, while our hybrid value portfolio, credit strategies and accord funds all returned more than 15% in 2023. In our PE business, our flagship fund performance remains very solid, with Fund IX generating a gross IRR of 32% and 22% net life to-date through year-end. Importantly, we've been able to generate these attractive returns while prioritizing senior secured investment grade credit quality and a "purchase price matters" investment philosophy. Off the back of this strong investment performance, we're seeing growing demand for our investment solutions in the marketplace. We raised $44 billion of third-party capital in 2023, an annual record when excluding flagship PE activity, reflecting the increasing breadth of our product suite. Athene's organic inflows continued to heights, totaling $63 billion in 2023, driven by strong secular tailwinds and leading market share. Approximately $23 billion or 35% of Athene's inflows were supported by continued growth through third-party sidecar capital. All together, organic inflows totaled $107 billion across the platform during the year. As we look to 2024, we expect momentum across all avenues of capital formation to continue. In our third-party asset management business, we expect to raise a record $50 billion of capital, including annual fundraising records…

Great. Thank you, Scott. And good morning, everyone. So as demonstrated by our results, 2023 was a very successful year of growth and execution for Apollo. We delivered on the financial targets that we laid out more than a year ago despite operating in a vastly different macro environment. In the asset management business, we achieved our 25% FRE growth target through fee revenue growth of more than 20%, coupled with decelerating expense growth, which drove the 200 basis points of margin expansion. In retirement services, we grew SRE by 26%. As Noah mentioned, you'll note a new presentation this quarter, on Page 10 of the earnings release, to separate SRE excluding notable items, which this quarter is $748 million or 141 basis points of net spread, from the difference between actual alts returns and the 11% long-term expectation, which this quarter is $132 million or 25 basis points of net spread. This change in presentation reflects both where the industry is moving to and is being required to move to, as a presentation format. Importantly, we still continue to manage the portfolio expecting the same 11% long-term returns. On this basis, our net spread, excluding notable items, for the year was 144 basis points. Considering our long-term expectations for alternatives returns, our net spread would be an additional 21 basis points higher and, combined, 30 basis points higher in 2023 versus 2022. Assisted by higher rates, this increase was driven by record organic growth, a favorable deployment backdrop and floating-rate income. With these strong results across the business, we expect to exceed our stated goal of doubling our total earnings to $5.5 billion by 2026. And we expect a mid-teens-plus compound earnings growth trajectory over the next few years. Executing on our plan for 2024 is the next important…

[Operator Instructions]. The first question today is coming from Bill Katz of TD Cowen.

So Marc, a lot of really good big picture type of views as you sort of think through the new order here. One thing that I sort of picked up on your comments was the fact that you thought that there could be an opening in the 401(k) market. I'm just sort of wondering if you could expand your views there. And then maybe underneath that, can you talk a little bit about how you're sort of seeing the competitive landscape developing in the wealth management channel as everyone is sort of [indiscernible] position?

So you are absolutely correct, Bill. I do see an opening in the 401(k) market. The 401(k) market is not limited by legal restriction. It's limited by a risk mentality as a result of substantial litigation over a long period of time, but I think we're seeing a stabilization, particularly as the set -- suite of private products is no longer all high fee, high carry, locked away in funds. You're watching the first baby steps as fiduciary managers in 401(k) begin to mix-in private into their heretofore public solutions simply to get better outcomes and better diversification. The other thing we're seeing is we're seeing a focus on guaranteed lifetime income or guaranteed income, where annuities are going into target date funds and for the same purpose. I believe we're going to see a continued migration. I don't have the number in front of me, but my memory is kind of plus $1 billion this year in 401(k) and fiduciary retirement products. I think again we're at the very beginning of this, just like I feel we're at the very beginning of wealth. And I'll pivot to wealth: Much of what's happened in our industry, whether it is regulation, which has been a negative, or it's been the opening of the high net worth market, which has been a positive, has for the most part benefited the large multiproduct firms. To serve the wealth channel, to serve RIA channels, to serve a global market, this is not a small exercise. This is 150 people in the field, product, infrastructure. It does not make sense to do product but only if you are firmly committed in moving your business and you see a future of a multiproduct variety. And so I think that there are a handful of firms who have a right to play in this market and have made the investment. It's not 2 and I don't think it's more than 10. This market is growing. We are at the infancy of it, and firms is kind of coming at this in their own way. I think there are good and bad that's being done. I'll just give you our way. We are focused on taking in money from this market not as quickly as we can but as quickly as we can deploy. Ultimately, producing good returns, not having extreme volatility, thinking long and hard about whether we offer this market binary outcome products, is how we're going to approach it. We want to position ourselves as the innovator in this marketplace rather than the largest in this marketplace, and I think we're -- we've made good progress in doing it. We have a lot of work to do, but I remain very optimistic.

The next question is coming from Glenn Schorr of Evercore.

One small one, one big one, if I could. The small one is if you could dive into the return differential in alternatives of your 11% over time versus what you've actually been experiencing lately. You talk about good performance on the origination platforms. When I look at your performance across the board ex European Principal Finance, everything is really good, so I'm curious what's falling short within the Athene portfolio. And then the bigger...

Let me hit that quickly. And then I -- we will not -- you -- I'll get -- you get your chance to ask the larger question, in violation of the operator's policy, but think of it -- so the easiest way to see it: AAA, which represents all the platforms and all the investments, basically was circa 10% this year, not quite the 11% that we hope for but generally good direction given that we are not focused on the kind of beta of the public markets and leverage the tech and AI and things like that. The difference between that and the Athene performance is a drag on certain insurance stakes. So Athene holds, outside of AAA, its investment in Challenger, its investment in Catalina, its investment in Venerable. We had less appreciation this year in those stakes versus the overall portfolio, and that's the difference, Bill. There's really no other differences of note.

All right, cool. And then my violation part B is you said $200 million to $250 billion. I kind of remember $100 billion to $150 billion, getting to $150 billion. I know you were at a $30 billion run rate and I know you bought Atlas but curious how you bridge that extended and larger origination scale...

So we -- when we set out our 5-year targets a little over 2 years ago, we -- the 5-year target was to get to $150 billion of origination. I believe that we are -- and that would be "2026." I believe that we are well on our way to achieving that target. $30 billion of run rate and really high-quality run rate in the fourth quarter was very encouraging. The plans for this year also call for continued tick-up in origination volumes. Origination is the lifeblood of our business. When we step back and we start thinking about the next 5 years, which would carry us 5 years from today, to power the business to where we want to be, if we want to serve the fixed income replacement market, essentially if we want to go to institutions and offer them private investment grade in place of their current fixed income allocation, we need to originate more. If we want to play a role in allowing high-net-worth investors and institutional investors to pivot out of active management of equity -- I believe they're going to pivot into hybrid. We need to originate more hybrid. And fundamentally if we're going to grow our business, it is limited not so much by the amount of capital raised. And I respect that capital raising is a very important part of this. And sometimes it's easy and sometimes it's difficult, but in the long run, a firm that offers excess return, which all of the alternatives firms do, we are only as good as our capacity to generate investments that produce excess return per unit of risk. It is the lifeblood of our business. And we are very focused on moving past the $150 billion original 5-year goal and ramping that to as close to $250 billion, which I believe is a realistic target going out. More to come [indiscernible] in October of this year, at Investor Day, but this is job one and two for our firm to sustain growth, and truly for every firm, Bill.

The next question is coming from Alex Blostein of Goldman Sachs.

So Marc, just to build on that. You talked about origination being the lifeblood of the business fairly consistently for quite some time now, which all makes sense. As you look to grow the business further or scale and accelerate your origination capabilities, what sort of needs to happen for you guys to get to those numbers? Is it more coverage? Is it more boots on the ground? Is it more capital, which I guess some of that will come in through AAA? Is it more product? Is it more acquisition of origination platforms? So I'm just trying to kind of again think about what's within your control to really accelerate this growth further.

So a -- some of it is more boots on the ground and building out what we call high-grade alpha or high-grade solutions. And that's been, as Scott highlighted, a very good business; and a very unique product for us; and one, quite frankly, that doesn't make a lot of sense across asset management unless you are both an agent and a principal. We built this business to power Athene. We then decided for good and valid reasons that we should be fully diversified, so we began to power third-party insurers because, after all, we want 25% of everything and 100% of nothing. And now we also discover that institutions, as they are evaluating how to improve their performance in their traditionally public-only investment-grade bond portfolio, are willing to begin to move toward private, so long as it is at the same rating. This is happening with extraordinary speed in the conversation in the consulting world and with the innovators, and I believe it's going to continue to happen. In terms of where the volume comes from, yes, there will be more people with more coverage, but for us, we have 16 origination platforms. Only a couple of them are at scale. This is about growing the origination platforms. We are -- and I don't think we need a 17th, although that may , but that is not the goal. We are not short opportunity. It's now about focus and execution and simply delivering. I mean, even a $20 billion origination platform or $22 billion, which is MidCap, it still has lots of room to grow. MidCap is way too U.S., just building out their European business, adding products. They have the capacity to double that business. Atlas has the capacity to double their business; , more than double their…

The only thing I'd add there is the other 50% not coming from our platforms comes from the Apollo system. We've put enormous time and energy over the last 12, 18 months really driving the origination, linking our various business units to be able to drive the sourcing capabilities to provide more debt originations from all the relationships we have across the variety of our businesses, our equity businesses, our hybrid businesses, our infra businesses. And that -- we're seeing that start to really come into effect, so we're only in the early innings of fully tapping that from an origination capability, so -- and just a lot of momentum all around from all the different sources of origination.

The next question is coming from Patrick Davitt of Autonomous Research.

My question is on the retirement services growth guide run rating at $80 billion in 4Q but guiding to $70 billion for 2024. So does that disconnect some restriction from available capital? Or are you just being conservative and the growth could actually continue to track from that higher 4Q run rate?

I think you're hearing from us. In a week or 2, on the fixed income call, you'll hear from Jim Belardi. And if you look back in history, the team sitting in New York is a little more conservative than the team sitting out in , but I want to caution this is not just about volume. We can generate all the volume that we want. And I'm going to encourage you to really look into how people are generating volume. When you buy a secondary block of business, you're buying something that's degraded from a surrender charge point of view. I'm not sure that's good business. I'm not sure I can invest against that. I'm not sure I like the potential risk of that business. So we can do a victory lap by growing, but that's not the growth I want. We can also do a victory lap by growing 3-year [indiscernible]. That's going to feel great this year and next year and the following year, but all I'm doing is setting up a cliff that is ultimately going to fall off. And I may not like the 3-year [indiscernible] years from now. We are focused on high-grading the business that we do. I would rather do $70 billion of business that $80 billion or $85 billion of business. And I think, while it is -- while many of you are learning this business, we've been living in this business for 15 years and the headlines are just not -- are not what they seem. And this gets also into the guidance on SRE. We had an unbelievable 2023. Jim Belardi and team, Grant Kvalheim and team, I hope they're listening. They should be doing victory laps. We actually did what we say we do. We were not a…

The next question is coming from Michael Brown of KBW.

So the mantra for 2024, no new toys. How can we expect the capital allocation to progress over the next 2 or 3 years? And then specifically in 2024, any way to maybe put some guide rails around how the share buybacks could be utilized this year?

Michael, it's Martin. I'll -- so I addressed some of this in the -- in my comments. I think the priorities in terms of allocation, for us, are to grow Athene. And the benefit of growing Athene, including with the , are numerous. And the earnings leverage from that is really beneficial; and some of which, we outlined at the Origination Day last October. It also grows AAA, all right, so that has a compounding impact on earnings. We want to -- we are -- as I mentioned, we don't see a lot of scope to invest in growing the business inorganically. And so that should be modest and very sort of targeted. We want to make sure that we're at least immunizing employee stock issuance, and so that's built into the plans. And then the ability to immunize and reduce the share count on a real basis is on realizations really. That's the delta. And so as realizations pick up, we'll have more flexibility to do that. And that really depends on what the markets -- what receptivity there is in the markets for exits, particularly in our private equity business. So that's how we sort of connect it all together. Whichever way you look at it, the returns -- the marginal return on a dollar of capital -- whether you're buying back stock or whether you're investing in Athene are both attractive, so they're both good choices, but that's how we try to balance it. But I would think, in terms of time frame, think of it as a 3-year plan, but we need more sort of near-term realizations to be leaning into that, so more back ended than front ended.

The next question is coming from Brennan Hawken of UBS.

Martin, I'd like to maybe try and square your comments around the cost of funds in the fourth quarter and some of the adjustments you flagged to Slide 12. Is the one piece that's not one of the notable items the impact of the new performance fee? And given that performance fees are something I'd think you guys would be collecting on a regular basis, why is it that we should be adjusting that out? Can you please just maybe help us understand that impact a little bit more?

So this is Marc. I'm going to give a conceptual and then Martin will address the specifics. If you look at history in our portfolio -- and this is not history of 1 year, but you look over 15 years. Then you say, where have the vast majority of losses come from in the investment portfolio? They've come from the corporate IG book, the thing that everyone thinks is safe. And if we're -- if you think of that as like most investors, a lot of that is based on rating and diversification and industry classifications. That no longer suffices. Athene has decided that it makes more sense to bonus the people who are managing portfolios for them, net of specific losses and net of specific impairments, which now include the corporate IG bond book. What we saw was it -- 100% of the charge for the change took place in 1 quarter, as opposed to spread over 4 quarters. Ultimately the belief is and the reason this was done is that this on a net basis should be a positive for Athene, but in the quarter it was taken, we're just calling it out so you know exactly why it was taken.

I think my...

Sorry...

I would also connect it back to originations, all right? So it's a tool to incentivize appropriate originations on a risk-adjusted basis. And the math is pretty simple. The full charge of 7 bps was taken in 1 quarter, but think of it as an equivalent dollar amount performance-dependent taken over the course of the year. And if you adjust for that and the notables from Q3, you -- and look at the change in sort of top line fixed-income income and cost of funds, they're right on top of each other on a quarter-over-quarter basis.

The next question is coming from Ben Budish of Barclays.

I was wondering if you can give an update on ADIP specifically and then maybe speak a little bit more generally about sidecars. You identified it, I think, last year as one of your kind of strategic priorities going forward, so maybe a little more color on how you expect that opportunity to evolve and what we should see this year.

Sure. So fundraising, going quite well. We expect to wrap it up this summer in the $4 billion to $5 billion range, so providing Athene the sidecar capital necessary for the next probably 2 years. So feeling really good about that. Part of what we're doing is just a big education campaign, right? This is not necessarily an intuitive product to investors, but once folks start to understand it, it's a pretty exciting product.

Yes. The color I would give in this -- and this is as you evaluate entering into this business. The reason we are successful raising sidecars -- and people buy into the business pro rata with Athene and actually pay both Athene and Apollo fees for the privilege of doing retirement services business. The reason this works is they, the investors, have seen us over a very long period of time stick to a mantra of high cash-on-cash returns. The ability to produce north of 15% cash-on-cash returns growth in book value over that period of time; and to step away from the market; and to step away from kinds of transactions that, while would give us growth, but -- are not fundamentally good transactions is why we're trusted with this capital. People will discover very quickly that this business done poorly is very capital intensive. This business done well is a great business, so I just step back to the big economics. It costs roughly $0.08 of capital for every dollar of growth. If you fund all $0.08 yourself -- you can do the math as to how big you get and how much capital you need. Roughly 2/3 of that $0.08 is funded by third parties who for -- pay us a fee for the privilege of funding because it offers excess return per unit of risk and they are aligned with us. And they know that we will be good stewards of their capital. If firms do not produce high rates of return and do not make fundamentally good strategic choices, they will not be trusted with sidecars; and that will be the difference between success and failure.

The next question is coming from Michael Cyprys of Morgan Stanley.

I wanted to ask more broadly on the retail annuities market with aging demographics and the need for income. I was hoping you could speak to the market growth that you expect from annuities over the next 5 to 10 years. And what sort of enhancements might you be able to make to the product set and overall customer experience to perhaps unlock some additional growth and expand the ?

So the product set for annuities, if you look over a long period of time, has not evolved all that much. We entered the market [indiscernible] a decade ago. And the changes that we made to the product in the context of our industry we're very substantial but in the context of financial service is not all that substantial. We stripped down many of the unused [indiscernible] and we added it to rate and simplified the product and simplified the administration of the product, and it turns out consumers prefer more to less. That has allowed us, along with capital and good asset availability, to move from a new entrant to the market to the largest-ever year of annuity sales in 2023 and a leading market position. I think we will continue to see modest changes around the traditional product in terms of custom indices. And because the product, as you know, is not a straightforward you get a set rate, you actually get a percentage of a market's index performance, subject to a floor; and investors like that mix of upside and downside. The holy grail of this business, in my opinion, is both simplification and a much simpler promise of guaranteed lifetime income. Currently firms taking one significant risk. That's investment risk. When you move to guaranteed lifetime income, you're taking both investment risk and longevity risk. We have elected, to date, not to take substantial amounts of longevity risk in our portfolio, but like any marketplace, there is the opportunity to work with market participants who are on the other side of the longevity bet to hedge out that risk. Right now the costs of hedging that out would not allow for the distribution of a product that neutralized longevity risk in a commercial sale, but in…

The next question is coming from Finian O'Shea of Wells Fargo Securities -- actually, I -- apologies. It looks like we have reached our allotted time for questions. I'll turn it back to Mr. Noah Gunn for closing comments.

Great. Thanks for your help this morning, Donna. And thanks to everyone, for your interest and time this morning. If you have any questions or clarifications about anything discussed on today's call or our results, please feel free to reach out to us. And we look forward to speaking with you again next quarter.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time, and enjoy the rest of your day.