Good morning, and welcome to Apollo Global Management's First Quarter 2024 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 performances. 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 measures 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 for 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.

Thanks, operator, 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. We report strong first quarter financial results, which included FRE of $462 million or $0.75 per share and SRE of $817 million or $1.32 per share. Together, these 2 earnings streams totaled $1.3 billion, increasing 18% year-over-year. Combined with principal investing income, HoldCo financing costs and taxes, we reported adjusted net income of $1.1 billion or $1.72 per share, up 26% year-over-year. Additionally, we declared a quarterly cash dividend of approximately $0.46 per share for the first quarter, reflecting the new higher annual run rate level of $1.85 per share as previously announced. Joining me this morning to discuss our results in further detail are Marc Rowan, CEO; Jim Zelter, Co-President; and Martin Kelly, CFO. Before handing it over, I'd like to formally announce that we are hosting an Investor Day in New York on Tuesday, October 1. We will provide additional detail in the coming months and hope that you will join our broader team as we discuss the exciting long-term growth opportunities in front of us. And with that, I'll now hand it over to Marc.

Thank you, Noah, and good morning. As Noah detailed, first quarter results were strong. Personally, I was very pleased. FRE was $462 million, up 16% year-over-year. And you will hear a little bit from me but mostly from Jim, there is momentum in every part of the business. For SRE, we reported $817 million, up 19% year-over-year. Key note for the quarter, a record inflow of $20 billion for the quarter. I'm going to spend some time providing color on the quarter but then quickly move to the outlook for the year. In the quarter, particularly with respect to SRE, we had 3 things going on. The first, really good. The team generated, as I suggested, $20 billion of inflows diversified across their funding channels, particularly three of their funding channels. While they generated what they needed to, and origination, as you will hear, was very strong, they were somewhat mixed in terms of timing. The generation of liabilities took place at a relatively even pace, whereas most of the origination was back-end loaded, resulting in higher cash balances for the quarter, which we expect to even out across the year. The second, alternatives had a slight underperformance versus what we historically have normalized or come to expect had normalized. But the biggest action in the quarter was our move to significantly derisk the floating rate book. Recall that we run a common sense strategy. When rates are very low, we have been able to earn very nice rates of return without maximizing current period SRE and putting on significant floating rate exposure, which gives us upside as rates normalize. You should expect, as rates have returned to more normalized levels, we use this as an opportunity to significantly reduce our exposure. Exposure now is about $16 billion, probably where…

Great. Thanks, Marc. Let me dive into a few more details. The foundation of our business is built upon delivering strong investment returns for our clients. And we have historically done so by upholding a purchase price matters investment philosophy across market cycles and strategies, which embrace downside protection structure in return for excess return per unit of risk. Most recently, the industry has evolved into a paradigm marked by higher for longer rates, tighter spreads and extreme valuations, and we've responded accordingly. Over the last several quarters, we focused on larger companies and transactions at the top of the capital structure while employing less leverage than others in the industry. Marc mentioned the ADS, Apollo Debt Solutions. There's a great example of that, where we produced a 14.5% return over the last year but a conservatively levered balance sheet of 0.6 with a 100% corporate loan portfolio. Additionally, we continue to generate meaningful excess return in this intersection of equity and credit, which we define as hybrid, driven by a variety of structural changes and inefficiencies in the market. Our 2 flagship strategies in this area, the Accord series and the Hybrid Value series, have generated particularly strong returns, appreciating 4% in the first quarter and more than 16% over the last year. Alongside investment performance, capital formation is a critical driver of our growth. We generated strong inflows across the business in the first quarter, as Marc highlighted, including $20 billion from our asset management business and $20 billion from Athene. And organic inflows, excluding any leverage or segment transfers, totaled $33 billion, which is on track with our $120 billion target for the year. Double-clicking on this third-party fundraising. Credit-oriented strategies were very much in focus and accounted for more than 80% of capital raised in the…

Thanks, Jim. Good morning, everyone. Let me close out with some brief comments on our financial performance. Our first quarter results positioned us well to deliver on the financial targets we've communicated for 2024, which signal an attractive mid-teens earnings growth trajectory. We view the sustainability and predictability of our earnings profile as highly valuable and increasingly appreciated by the market, especially against the backdrop of macroeconomic uncertainty that has impacted more cyclical revenue streams. Starting with the asset management side of the business. FRE trends remained solid with 16% growth year-over-year, reflecting revenue growth of 13% and cost growth of 9%. As we look towards the remainder of the year, we're on pace to generate the fee-related revenue growth, margin expansion and overall FRE dollar growth we have indicated. We expect growth in fee revenue to be supported by strong and diversified capital formation, a record $50 billion of dry powder with future management fee potential, and a robust capital solutions outlook that should deliver a strong second and third quarter based on the pipeline we see today. For expenses, we will continue to manage our cost base prudently while selectively investing in key areas, principally global wealth and our credit business. We also expect to recognize a $15 million onetime non-comp expense related to the previously announced merger of two closed-end funds with and into MidCap Financial Investment Corp., a publicly traded BDC we manage, which will most likely occur in the second quarter on the closing of these transactions and which was contemplated in our original expense growth guidance for the year. Altogether, we expect to generate between 15% and 20% FRE growth, as Marc indicated, in line with our growth expectations for a year in which we do not raise a flagship PE fund. Turning to…

[Operator Instructions] Today's first question is coming from Glenn Schorr of Evercore.

So I like hearing about all the progress in the wealth channel. My question is, in the asset management segment, non-comp was higher. One of the things you noted in the footnote was higher placement fees, so good expenses. So I'm just curious, obviously, that's included in your 15% to 20% FRE thoughts for the year. But I've been hearing some talk about moving -- some of the distributors want to move from placement fees to something smoother of a revenue share. And I'm curious if that's in motion and if that's part of your thought process within your FRE expectations.

I'd say -- I can say a couple of things, Glenn. It's Martin. Firstly, we are -- we're at the back end of the financial impact of decisions we've made to reset our cost base, both comp and non-comp. And so you should expect that Q1, which was a step-up from Q4, represents normal going forward. And so -- and that's all consistent with the guidance for the year, which is 100 basis points of margin expansion, '24 over '23. In terms of the specifics around the question, there are actually a variety of different ways that we distribute products. Some involve an upfront placement fee, which is typically expense and in the numbers. Others involve a trailer fee against revenues. So it's a mix actually depending on distributor and product. And so there's no real change. It's just there's different constructs that are appropriate for different products. And we have products that distribute using each of these sort of trailer or cost structures.

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

I was hoping we could start maybe with your outlook for third-party fundraising. You guys are obviously off to a really good start here in the first quarter. So maybe update us on what you're expecting for the rest of the year with respect to third-party fundraising. What are some of the key drivers behind that? And as you sort of think about some of these larger insurance companies coming in into your offering, how should we be thinking about the fee rate, particularly within the yield bucket, on the blended basis going forward?

Thanks, Alex. I think Marc and Martin hit it. Like we think the first quarter, it sets the level for great trend growth throughout the year. We're very comfortable that what we've seen in terms of the last 24 months, bringing the products together, being very thoughtful about our product suite, really delivering a holistic package. So we're very comfortable taking the first quarter and looking at that as the year grows out. So in our mind, the numbers we've put forth in terms of full year target of the $50 billion, we still feel very comfortable with that. And the traction across all of our channels would feel -- give us the great comfort. Certainly, a lot of the conversations are going on around the yield businesses. And whether it's what we're doing in direct origination, the pioneer moves we're making in asset-based finance, Marc alluded to the insurance company in terms of the ecosystem and the broad breadth there. So in our simple summary, we love the trend. And we're hitting on all cylinders, and it's across products. But certainly, yield is the primary, but we also have solid fundraising in a variety of our hybrid, whether it's the Accord Plus; whether it's HVF later in the year; or in our equity businesses, AAA and infrastructure and such. So feel very comfortable with the trend, feel very comfortable. The themes that we're seeing are strong. And I think there's this -- in the industry, and Marc alluded to it, but just much, much greater cooperation across a variety of like-minded positioned investors in the insurance industry as well as in the banking business, which we can talk about. Fees, we're not seeing fee compression. People want product. They see it's interesting. If you look at where the high-yield indexes are this morning as we have this call, basically, if you look where those levels are today, they're extremely tight. And if you look at where high yield is right now, it's basically 350 over. And for you to make these investment-grade investments for these insurance portfolios, 250, 300 over, it's incredibly attractive. So we don't see fee pressure, we see a trend line growth, and we're comfortable with the pipeline.

The next question is coming from Brennan Hawken of UBS.

I'd love to hear updated outlook on capital solutions. Really strong revenue momentum there, building on last year's strengths. So were there any particular platforms that were notable contributors? And given the building momentum behind capital markets activity, why shouldn't we see those revenues continue to show robust growth?

Well, this is Jim again. I think there's a number of questions there. We do get excited about our capital solutions because it ties into not only distribution of great ideas, and as Marc said, 25% of everything and 100% of nothing, but it increases the dialogue that we have in our capital formation. Investors see the product that they're seeing from us and it opens the door to get closer. And again, so we're seeing momentum. I think taking a broad step back, some of the themes that Marc talked about, whether it's not only it's the transition from equity that's private versus private equity, a variety of these asset-based solutions like the seller financing from UBS, these are all trends that we believe are going to continue to expand on the existing business. And then when you think about what's going on domestically with large, whether it's the Infrastructure Act, the CHIPS Act, what's going on in EV, there are many, many investment-grade companies that are going to be confronted with massive growth initiatives. And it's not obvious that they should do it through the traditional channels of investment-grade public debt or equity. And we're just finding ourselves at the intersection of those conversations. Certainly, you've seen what's happened in the past several months with what we did for Air France and Vonovia and many other companies. But again, our model is based on making sure that we are an investor first. But this ACS, the flywheel of origination, distribution, getting closer to your clients and then finding new avenues from which companies will fund and finance, that flywheel is working. And so while we do expect growth, we want to do it in a very measured manner.

The next question is coming from Bill Katz of TD Cowen.

Look forward to seeing everybody in October, if not sooner. So Marc, not to steal any thunder from a couple of months from now. But when you laid out your goals for the sort of 15% to 20% FRE growth and the low double-digit growth for SRE, your flywheel that Jim was just talking about was substantially smaller. How do we triangulate between the sort of the rapid growth of your ecosystem to the financials in terms of thinking through the earnings growth? It would seem to me that you should be able to support either or both faster asset management growth and/or higher ROE in the insurance business. Or is there an elevated expense offset to some of that flywheel acceleration?

I don't -- thanks for the question. I don't think any of the above. I want to come back to and I guess maybe be a little bit of an outlook for the industry. Our industry has amazing potential. The case for private markets is a very compelling case. People used to look to private markets for excess return. Now they look to excess -- to private markets for both excess return and diversification. I saw a note the other day from our Chief Economist, better than 80% of employment in the U.S. is in private markets. We think about S&P 500. We think about public markets. We spend so much time talking about them. But investors increasingly are now recognizing that they have exposure to a very small sliver of the economy through S&P 500. They're all -- my joke is they're all levered to NVIDIA, Apple and Amazon. So I expect there to be very robust growth in private markets. All good. The lockdown -- we, as an industry, have to be very careful to stick to our promise of excess return per unit of risk. That is why investors pay us premium fees. That is why they trust us. This is how they navigate private markets, with firms they trust. We are limited, and I believe we will all in the industry discover, we are not going to be limited by capital flows. But the taking of capital because you can take it and then investing it poorly is a quick way to destroy a business. I think we've seen lots of examples of that and the beginnings of those seeds being set. We are very focused on growing our business in the context of excess return per unit of risk, which is limited, in my opinion, by origination and by culture. We are balancing those two things. And so -- well, I'll say it differently. I like the position we're in. To be a $670 billion asset manager sounds like a big number, but the reality is, in the scheme of the markets we serve, we're minimal. The notion of doubling our business over the next 5 years, it doesn't seem all that daunting. The things we need to do: Origination, culture, education because to build something that's not sustainable is not what we're interested in doing. Sustainable, predictable, 15% to 20%; long term in the asset management business; low double digits in SRE. If we get periods of market volatility where things are really mispriced and we can put large amounts of capital to work, as historically we've seen at least once a decade if not twice a decade over the past few decades, you will see those accelerate. Origination, origination, origination for us.

The next question is coming from Ben Budish of Barclays.

I wanted to ask about some of the nuances on the retirement services flows. It looks like your FABN issuance was a bit better than what we would have expected from what we saw publicly. The PRT side was a little bit lower. Just any nuances there. And on the PRT side in particular, any concerns related to some of the shareholder lawsuits that have materialized in the last several months? Do you think that sort of increases the concern that a corporate might give some pause before engaging in a transaction with Athene? Or do you feel like this is something that will blow over, and Athene will shake out just fine?

Thanks, Ben. It's Marc. The business is a 2-sided business, and I've said this a lot. And it's -- we've been the only ones disclosing this. So it's been difficult, I believe, for analysts to really understand it. Our business is about creating spread. If we don't have wide spreads, we're not interested in doing business. We have better uses for the capital. And so we have built, and Jim has spent a lot of time talking about the asset pipeline, private investment grade, excess spread on the asset side. I'll focus now on the liability side and get to your question. We have built, over the past 15 years 4, different channels in which we can originate. In various periods of time, some of those channels are really attractive and some of them are not that attractive. Last year, FABN was not all that attractive. This year, FABN is very attractive. Reinsurance, particularly international insurance in -- from Japan, really attractive business. FIA, really attractive business. In PRT, PRT was one of the most attractive segments of business last year. This year, prior to any lawsuits, we saw cost of funds associated with PRT at levels that reduced spread to places where we just didn't think the business was all that attractive. A win is only a win if you have wide spread. The lawsuit is actually going to, in my opinion, chill PRT volume across the industry. This is not an Athene-specific issue. Athene is the strongest of the companies in the industry with the most capital and other things. There are and have been other lawsuits relating to this. Any time you have noise, however undeserved or poorly drafted, it needs to be disposed of first. I think we will see a decline in expected PRT volume this year. I'm not sure that's a bad thing from our point of view given that, at the moment, spreads in PRT are not all that attractive. I encourage all of you to look not so much at flow, but to look at cost of funds and spread. Cost of funds is a very tricky measure. There are lots of ways management teams across industries have been surprised by the cost of various options and features that they have built into their products. For us, we have built this business in partnership with Jim Belardi and Grant and the team from the very get-go. As owners, for owners, it's our equity. We want high-spread business. Thank you.

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

My question is on the ATLAS-MassMutual partnership. Firstly, any framework you can give on how to think about the impact on ATLAS' origination volumes and thus Apollo earnings? And then secondly, the press release suggested there was also some sort of separate flow or management agreement with your ABF business. Is that a fair read? And how should we think about that secondary agreement as well?

So first, I've said this publicly, and it's actually kind of an interesting observation for how this goes. I think when I think -- I'm asked often who our best competitors are, I think MassMutual is our best competitor. I look at what they do on the asset side. I look at their -- on the liability side, the quality of the team. That does not in any way mean that we should not be partners with them. We want and we continue to deliver this message, and it is resonating. We want 25% of everything and 100% of nothing. They are a like-minded, high-quality financial institution who sees the same opportunity that we see and increasingly what the rest of the industry is seeing. They're just among the first movers. As to the specifics for ATLAS, I'll let Jim delve a little bit. And I know there's a lot of enthusiasm about ATLAS.

Yes. I think continuing to taking the wide scope and then drilling down, I mean, ATLAS for us and this conversation about what private credit is historically been defined versus what it really is defined, the $40 trillion, ATLAS is really that platform, of our 16, we've got 6 or 7 that really drive the activity. And what you're seeing in the recent announcements about ATLAS is it is a finance lender to finance companies. And therefore, the breadth and scale of equity and debt financing that, that vehicle attracts and needs to have, as well as SMAs, partnerships, offtake facilities, that's what we call the ATLAS ecosystem. And it will continue to grow. We've been very successful since we've closed it. It's fully ramped. It's fully funded. We will have other folks that you'll hear about be coming into us. But it's that flow that lets us have the ABF institutional fund. It allows us to have ABC, which is the vehicle that I mentioned. And I really want to differentiate because I heard a lot of these calls the last couple of days talking about SRT. This is just making sure that we control the origination on a systematic, structural long-term basis. Not a one-off SRT trade, which is interesting and bespoke, but those were interesting tactical trades. We wake up every day saying, how can we -- when Marc talks about getting the liability and focusing on spread, how can we ensure that we have as large a pool of long-term assets feeding that -- those liabilities, offsetting those liabilities. And ATLAS is just one of the big, big pieces. And when we think about that, it's much more dramatic than the quarter-to-quarter activity in SRT trade, which is one of the 40 tools. We're very involved in that sector. We've been doing it since '09. Some of the more recent transactions are a little bit [ blind ] pool, exceedingly strongly levered, but they are strong IG assets. But again, I would note, those are things that you source from others, whereas ATLAS allows us to source directly. So the MassMutual dialogue and relationship is holistic. It's across the ecosystem. And we suspect that will be the template from which many, many others join us.

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

I wanted to circle back to the new Apollo asset-backed company, ABC, that you guys are launching. I was hoping you could elaborate a bit on the product, the return profile. Interesting, you're structuring as an operating company. I hope you could elaborate a bit around that. And maybe just talk about your vision and how big could this be over time.

Well, really, Mike, when we think about the activities in terms of consumer finance, hard assets, the broad areas of asset-based finance, this is the vehicle that lets us -- we have the institutional product, ABF, which we've raised some nice money and will continue to be one of our flagship pillars in the yield and credit infrastructure. And this was created to really give the global wealth channels -- as investors have really grasped onto private credit, they realize they have a concentration issue in sponsor buyout activity. Now that's the recognition that there's a desire for diversification. So this will really be the first-mover product set. You will see this as a majority of investment-grade risk, a majority of debt risk, but yet it does have some non-investment-grade debt exposure and some residual and equity exposures. But we are trying to have this be like ADS, our flagship product, that operates in the highest-quality growth in the sector and really is trying to get high single digits, low double-digit returns, but doing so in a very comprehensive manner by not using leverage but being -- really using the sourcing of the product. So it will be our flagship product in asset-based as ADS is our flagship product in corporate credit.

Yes. I'm going to just punctuate this a little bit, especially given the environment we're in and the concerns over credit quality. We've been in this business a long time. And for me, this is -- for Jim and I, it's our 40th year. It's hard to believe that sometimes. And I'll just take ADS as an example. We run ADS at 100% first lien. And we run ADS, I believe, with the lowest leverage in the industry. Could we produce higher rate of return, higher dividend? Of course we could. But we know that particularly as we're introducing an entire marketplace, institutional and retail, to the notion of private markets, that they should experience the same way -- this is the same way that the smartest institutions in the world have experienced it and not have returns artificially manufactured through leverage or otherwise. The time to be levered is when assets are really cheap and they're plentiful and available. The time not to be levered is when markets are tight and there's lots of liquidity. It's easy to be seduced into wanting to produce high returns. We've always been focused on trying to produce acceptable returns, excess return per unit of risk. And the same philosophy that we run ADS and the team runs ADS by is how we're going to produce this in asset-backed to make sure this category, which should be as large as corporate over time, is introduced to investors in the best possible way. And going first and telling the story is exactly what we want to do.

The next question is coming from Kenneth Worthington of JPMorgan Chase.

This is Alex Bernstein on for Ken. I know there was a question previously around ATLAS and the MassMu relationship, so apologies if any of this is repetitive. But I do think there are a couple of other points we're hoping to dry out. Firstly, do you see this type of arrangement accelerating your ability to reach the $200 billion to $250 billion long-term origination target that you communicated previously? And then secondly, how are you managing these platforms as a portfolio to reach your goals? And how are you thinking about the mix of outside capital, Apollo Capital, bolt-ons that best help you reach your growth goals and those of Athene?

Well, thanks for the question. This will be a great conversation at our October day. But basically, we have these 16 platforms. The top 5 to 7, namely MidCap, ATLAS, PK, Wheels are the great drivers. And yes, as we think about running those as a portfolio, optimizing the financing on those and bringing in third parties, whether it's in SMAs on the production side, or even in many instances where we brought in investors to own the equity along with us, that's all part of the flywheel. So certainly, we think that when we look at what's going on with our platforms and with bringing this integrated toolbox to -- solutions to companies, we think that gives us the confidence to take our numbers up from our 5-year plan. And so as Marc said, when we did our first Investor Day, it was $150 billion in debt by '26. We'll achieve that. But we've sort of now changed the definition of the equity and hybrid. So in our mind, hitting those $200 billion-plus numbers, the driver really will be how we integrate those platforms. And again, how investors deal with us, whether it's an SMA, whether it's a commingle vehicle, whether it's owning part of the equity, it's all part of the same equation.

Thank you. That concludes the Q&A portion of today's call. I will return the floor to Noah Gunn for any additional or closing comments.

Great. Thanks, everyone, for your time and attention this morning. If you have any follow-up questions on anything we discussed on today's call, please feel free to follow up with 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 or log off the webcast, and enjoy the rest of your day.