Good morning, and welcome to Apollo Global Management's Second Quarter 2024 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 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 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 like to turn the call over to Noah Gunn, Global Head of Investor Relations.

Thanks operator. And welcome again everyone to our call. We appreciate the opportunity to speak with you and discuss all the momentum we are seeing across the firm. Earlier this morning, we published our earnings release and financial supplement on the Investor Relations portion of our website. We reported solid second quarter financial results, which included record quarterly FRE of $516 million or $0.84 per share and SRE of $710 million or $1.15 per share. Combined with principal investing income, HoldCo financing costs and taxes, we reported adjusted net income of $1 billion or $1.64 per share. Joining me this morning to discuss our results in further detail are Marc Rowan, CEO; Jim Zelter, Scott Kleinman, 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 1st. 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. With that, I'll hand the call over to Marc.

Thank you, Noah. Good morning to all. Thank you for joining us. Happy summer. Those in New York certainly know what I’m talking about. This quarter was a good reminder that great companies are built by honoring the fundamental promise they have made to their clients. In our industry, alternative assets. The fundamental promise that we make to our clients is excess return per unit of risk. Absent that, I’m not sure why we as an industry would exist. This promise, the delivery of this promise was on full display across the entirety of our franchise for the quarter, through a private equity and hybrid and in our credit franchise. Just a quick tour of the quarter. In private equity we announced three transactions in the past 30 days. Travel Corp, Everi and IGT Gaming, truly an amazing stat. The team is working round the clock. If you think about the last decade of our private equity franchise which is in compass by funds 9 and 10. $45 billion of capital, $13 billion already realized. In Fund [ph] 9 as of the end of the quarter, 29 gross 20 net. In Fund 10, 47 gross and 20 net. Notwithstanding head wins across the private equity industry by people who perhaps trade from a fundamental promise. The team is doing an unbelievable job. In hybrid or equity that is private, something we’ll talk more about on investor day. AAA, which is our flagship vehicle returned 10% over the last 12 months with on-track quarterly results. We now have positive returns in AAA 16 quarters in a row. To give you a longer-term perspective of why investors like hybrid, we've had two down quarters over the past 38. In a market characterized by volatility, by indexation and correlation, by key bets on…

Thanks. And as Marc touched on, each of our core business drivers, deployment, investment performance and capital formation, were strong in the second quarter and highlight that momentum across Apollo is building. As we've discussed, our current five-year plan is underpinned by three strategic growth pillars, including origination, global wealth and capital solutions, all of which are tracking ahead of our 2026 targets and fueling growth in our franchise and our earnings power. On the investing front, gross capital deployment surged to a record $70 billion in the second quarter. The driving force of this strong investing activity was debt origination, complemented by deployment in hybrid and equity strategies. Record debt origination in the second quarter was driven by broad-based strength across all three forms of origination, traditional, platforms and record levels of high-grade corporate solutions activity. Combined with the strong first quarter, debt origination volume in the first half of the year was close to the total amount originated for all of 2023, highlighting the increasing scale of our ecosystem. We expect momentum in overall deployment activity to persist given the line of sight we have to robust transaction pipelines in both our equity and debt-focused businesses. As a result of the higher interest rate backdrop and structural changes in traditional financing markets, we're seeing a lot of demand for customized, long-dated solutions that utilize debt capital, equity capital, or a combination of both. We believe we're uniquely positioned to meet this need by accessing our lower-cost, scaled long-duration capital within Athene and elsewhere, coupled with our flexible investment approach that aims to maximize risk return across the capital structure. Within second quarter activity, the Intel transaction Marc explained earlier is a prime example of how we combine these powerful advantages to serve clients in a differentiated way. Importantly,…

Thanks, Scott, and good morning, everyone. So as we execute on our strategy, the building blocks powering our business, asset origination, capital formation, and investment performance, as you've heard, are setting us up to continue generating attractive long-term earnings growth. Let me close out with some comments on our Q2 financial performance and outlook in advance of a comprehensive review about next five years at our Investor Day on October 1. Starting with FRE results, fee-related revenues increased 11% quarter-over-quarter and 18% year-over-year, driven by solid growth across all three revenue streams. Management fees grew 3% and 8% respectively, driven by strong capital formation activity. Capital solutions fees, as you heard, exceeded $200 million in a quarter for the first time, reflecting strong growth across the border debt origination ecosystem that included a record quarter of high-grade corporate solutions activity. And fee-related performance fees, which are spread-based versus NAV-based in our business, continued their upward trajectory. Driven by our credit business, including growth in ADS, these fees have a high degree of stability and are now run-rating at more than $200 million on an annualized basis. Looking to the second half of the year, management fee growth should be aided by healthy organic and closer to Athene, fundraising activity in equity strategies, and the deployment of capital with already raised. We're currently sitting on a record $55 billion of management fee eligible AUM, of which approximately 80% is in yield and hybrid strategies, which generate fees when the capital is invested. Given the robust results in capital solutions in the first half of the year, we expect full year fees to be stronger than originally expected, inclusive of expectations for normalized fee revenue in the third and fourth quarters, supported by the very healthy pipeline that Marc referenced. Turning to…

Thank you. [Operator Instructions] Our first question comes from the line of Glenn Schorr with Evercore ISI. Please proceed with your question.

Hi, thanks very much. I just want to get a clarifier on your outlook. So you talked about what would impact the second half versus the first half on the alternative net investment income, so I appreciate that. Is the back-to-double-digit trend next year? I just want to be clear. Does that mean 2025, you hope to grow low double digits over what is the new thought process around 2024? And you mentioned that includes an 11% return on volts, which was kind of half of that recently. Maybe you could help us with what produced the underperformance of Athora and then or what seems like a good environment. Why are they not performing their normalized return? Thanks a lot.

So, Glenn, the short answer is yes to what you've said. But we do anticipate growing double digits over the results for 2024. In the Alts book, as Martin was saying, we have two types of alts. One is the invested alts. Most of the invested alts are inside of AAA, which is LTM 10-ish, just over 10. And that includes a substantial amount of cash, which is yet to be invested, which is being invested, which gives us great comfort that we'll beat 11. In terms of the back and forth over the strategic investments, Catalina and FWD have not performed well and are basically flat. Athora and Venerable in particular has been an awesome investment, but grew, I want to say, 16% to 20% last year. You just don't get a straight line. And Athora basically has been the same. It's been mid-teens rates of return, and this year it's up in the low single digits. So you do get some lumpiness quarter-to-quarter over the strategic alts. The other thing we're looking at is, and Martin mentioned this, you have a forward curve which talks about seven rate cuts. That is what we budget. And so we basically are going to an environment where we think we're going to earn low double digits against a backdrop of seven rate cuts. While we have dramatically reduced our exposure to rates, we have not fully immunized our exposure to rates. So that is a little bit of a headwind, and we're taking that into account when we're giving you guidance. Hopefully that's helpful.

Thank you. Our next question comes from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.

Hi, Greg. Good morning, everybody. So, Marc, private fixed income has been obviously a huge growth driver for Apollo over the last several years, and we've spoken extensively about that. More recently, I think you started to highlight opportunities you see to further expand Apollo's private equity capabilities, and I was hoping you could spend a couple of minutes on what that could look like sort of two, three years out. I'm assuming you're going to spend quite a bit of time at the investor day, but maybe a bit of a preview would be helpful. And I guess looking at the more near-term opportunities, Fund 10 seems to be quite active, as you highlighted. How does that inform your thinking about Fund 11? Thanks.

Okay. So I'll do some of it, and then Scott will pick up as he corrects or fills in for what I screw up. Let's start with this. Private equity is the traditional business on which the alternative asset management has been built. It is a 40-year-old business. Over the last decade in particular, call it 15 years, a lot of what has been produced was not the result of great investing, but it was the result of $8 trillion of money printing. Well, guess what? We stopped printing that magnitude of money, rates went up, and lots of people in the industry mistook good performance for actually a beta bet. We did not succumb to that. We are not facing the headwinds that the general private equity industry is facing, and what I wanted to do is really call it out. The benefit of purchase price matters is you get to be on offense. In markets like this, you get to produce good returns. I personally think this sets us up well for Fund 11. We have to deliver it, though. Scott, I'll leave it to Scott to speculate on timing and other things, but I'm feeling incredibly good about what the team is doing at private equity. Fixed income replacement, which you also mentioned, is happening, and I want to distinguish that from what people normally call private credit. Most of the usage of the term private credit refers to below-investment-grade direct lending, which I actually think is a terrific business, but it is funded primarily out of the alternatives bucket as an alternative to equity allocations What I'm talking about in fixed income replacement is primarily the replacement of public investment grade with private investment grade. I mean think about Intel as an example. Intel has bank…

I think Marc, Marc said that well. Going back to your question around our private equity business, you're right, deployments going very well there as I alluded to it in my comments the market we're in right now is really the sweet spot for Apollo private equity deployment, and we see that continuing regardless of what that may do in a quarter or two. So as we look at, as we look at just deployment pacing, I would expect by the end of next year Fund 10 will be largely deployed and we'll be we'll be kicking off a fundraise for Fund 11. So that should give you a sense of the timeline there.

Thank you. Our next question comes from the line of Patrick Davitt with Autonomous Research. Please proceed with your question.

Hi, good morning everyone. Marc at a conference a couple months ago. I think you hinted that a partnership like the KK Capital Group 1 is on the come with two hybrid liquid products planned for launch this year. Do you have any update on the progress there and when you expect to actually have products like that in the market? Thank you.

The answer is yes, I still am confident that we are on track, and you will see the first product in the market in Q3 and where I'm hoping the second product will be in the market in Q4. I'm going to give you a little, I'm going to answer more than you want because I think it's important to explain in the business. One of the things we have to decide as an industry is whether we are limited by origination capacity or not. Historically, I have thought we've been a small in this, let's say, this way, we've been a small industry. We've never thought about a limitation to our growth as the capacity to originate. We've always thought about money raising as the capacity to it. I believe as the firms have matured, the limitation to our growth is essentially our ability to originate really good assets. We're finding this in fixed income. Every really good asset we originate has a home. Okay, we did really well for the quarter. It was $50 billion. That's great. We have to think about these partnerships as additive to our franchise, not in place of our franchise. If I'm right, that origination is, in fact, the core -- the key limitation to growth. First, we have to scale origination as much as we can responsibly in the context of our culture. And second, we have to not get excited by the shiny dot of distributing to third parties and not getting full fees for assets we otherwise wouldn't want to get full fees for them by sharing them. That is how we approach these partnerships. I think you will see not just the partnerships that I've alluded to. I think you will see lots of partnerships this year. All of…

Thank you. Our next question comes from the line of Brennan Hawken with UBS. Please proceed with your question.

Good morning. Thanks for taking my question. Marc, you spoke to lumpiness quarter-over-quarter in some of the strategic investments that you guys have in your alts business, which is totally understandable. But given these are strategic investments, I think it would be really helpful to understand some of the sources of the weakness within these farms. If -- and it hasn't really it's my understanding that some of the weakness in those insurance properties, earnings has not just been like a one or two quarter phenomenon. And actually, that Catalina has been losing money. So could you speak to what has caused the weakness, what is going to result in that weakness reversing? And whether or not there's any active efforts on behalf of Apollo and Athene to help to support those earnings going forward? Thank you.

Okay. So this will be -- I'm not going to use this call because it would take the whole call to go through it, but I will encourage Jim Belardi and team in their fixed income call to do a little more detail and really go through it and get you what you need. But I think the way we need to do is we need to look over a period of time. Venerable has been an extraordinarily profitable investment. I don't have the stats in front of me. But by memory, it is like 20% return over a long period of time. The business has volatility, and so we end up with very high returns in some quarter. There is nothing fundamentally wrong at Venerable. It's all doing great. Challenger, public company had a big run-up and then has been flat, but over time has been just fine. Athora had a big run-up and is now just flat and has been fine over time. Catalina, as you said, has been weak. Catalina is in the P&C closeout business. We decided that from a capital return, notwithstanding recent activity, we did not like the long-term trends of that business. So we are in the process of transitioning Catalina from its traditional business of old block P&C to simply being a sidecar for Athene. Catalina has a very attractive capital benefit for doing business in annuity through diversification benefits and otherwise. Catalina is a relatively small investment, and you should expect Catalina to be wound down over the next two years. If I step back, a little bit of what's going on here is a strategic -- is a legacy from the point in time that Apollo and Athene were not fully aligned. When Athene was its own entity and Apollo owned a third, it made sense that all the strategic stakes were held within the insurance company so that all the insurance company activity was held in a regulated entity. Since the merger, where now we own 100%. Many of these stakes should probably have been held the same way we hold MOTIV or Sophie Nova or something else as balance sheet investments of Apollo. And so what you're watching is a little bit in this quarter, a frustration on our part because on the one hand, the vast majority of the alts portfolio is doing exactly what it's supposed to do, and you're watching the lumpiness in some of the strategic stakes. The only strategic stake that is not performing where it is, is Catalina, and it's a relatively small stake and it is in the process of transitioning its business, and that's what's going on in Catalina.

Thank you. Our next question comes from the line of Craig Siegenthaler with Bank of America. Please proceed with your question.

Thanks, good morning everyone. I was actually just curious on the prepared comments that the liability outflows and retirement, I think we're going to stay elevated in the third quarter driven by funding agreements, because in the fixed income presentation that you guys update every quarter, it looked like they'd be elevated in the second quarter which they were, but they were going to step down in 3Q. So I'm just wondering kind of why the difference.

I don't think there is a difference, I think you misheard. I think that we were saying that there is extraordinary levels of profitability associated with business that is terminating in the quarter rather than there will be deviations from the schedule. The schedule, as you know, we're pretty much on schedule, and we expect to be on schedule.

Yes. It's Craig, it's the run rate impact, principally. The reason we've been so transparent in publishing our expected future maturities across the portfolio is to provide that guide. And if you look at actual experience relative to expectations, it's right on top this quarter going back in time, and obviously, we expect that to be the case going forward.

Thank you. Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question.

Hey good morning. Thanks for taking the question. Just wanted to ask about Asia. I know that's come up on prior calls and conversations, just as a meaningful opportunity set for you. I was hoping maybe you can update us on your initiatives overseas and Asia, remind us of your footprint there? How you see the opportunity set unfolding? Which particular countries you're most excited about? And in particular, I'd just be curious for any updated color on what you see evolving in Japan and the opportunity there? Thank you.

Sure. Sure. It's Scott. Yes, no, as we've alluded to in prior quarters, our Asia business continues to grow pretty substantially, albeit from a small base starting a couple of years ago. Today, we have close to a couple of hundred employees on the ground in Asia across a number of different countries and a number of different asset classes. Just walking through I would say, from a PE perspective, we have really made a lot of progress in Japan. We've now announced and executed about 4 or 5 transactions over the last couple of years in Japan and have really established our presence there, most recently, just the deal announced a couple of months ago. So really like what we see from that market from a PE perspective. Other markets for PE, India and Australia would be where we're focused for private equity. Other things we're doing across Asia. We're building out our insurance capabilities. So whether it's through flow agreements and reinsurance agreements in Japan. As you know, some stakes in companies in Australia and Hong Kong. We continue to penetrate there, both on the liability side as well as asset management side for numerous Asian insurance companies that are that are looking for improved returns for their portfolios. And then on the credit side, we're continuing to scale really pan-Asia as a real opportunity as Marc alluded to in his comments, just the need for a thoughtful long-dated credit capital there is huge. And so that business continues to scale. So overall, we're being very methodic, very true to the Apollo value orientation strategy, safe, secured strategy, but there's real opportunity and we continue to scale it. So it's right now, it's, call it, in the 5% to 10% of Apollo dollars. That's as Apollo continues to grow at the rate it's growing, that percentage will probably remain constant, but continue to grow dollar-wise.

Thank you. Our next question comes from the line of Kenneth Worthington with JPMorgan. Please proceed with your question.

Hi, this is Alex Bernstein on for Ken. Thanks so much for taking the questions. We wanted to double click on the transaction. You've obviously done other similar large-scale deals. Some of the examples such as AT&T and Air France come to mind. But this one is obviously quite a bit bigger. So I think we wanted to double click and get a better understanding of how the transaction came together? How it may differ from some of the other ones? Or what made some of the lessons learned from the prior ones be? And then from a P&L perspective, to what extent it flows through the 2Q results that you reported, notably on the capital markets business side? If you can provide maybe a concept of just how big of an impact it was there obviously, record returns. And then perhaps what else we can look to expect from Q3 from this transaction? Thanks so much.

Yes. So to talk about the transaction, while you're right, Intel is a bigger transaction than some of the previous ones we've announced. The way it comes together and the way it operates is actually very consistent with how we approach this high-grade capital solution activity, right? It is really to serve these type of large blue chip companies, you really have to bring all the resources of the firm to bear from the relationships that may exist across the firm, whether it's private equity or credit or otherwise, are structuring capabilities, or underwriting capabilities, or syndication capabilities. So on a transaction like Intel, probably, if I had to guess something like 50 different folks across the firm touch that transaction as it was coming together over a period of several months. So these are not sort of desk trades, if you will, the way a small middle market private credit might happen. These are really big undertakings that only firms like Apollo with the breadth of capabilities and relationships could really do. From a scale standpoint, while it was large, these are -- given the magnitude of what's transpiring and whether it's the digital infrastructure build-out, the deglobalization and the amount of infrastructure that has to be rebuilt across the globe, the energy transition and all of the capital required there. This is becoming more the norm of the types of dialogues that we're having. So I think you're going to see more and more of this type of scale or potentially even larger. And so again, only a very small number of firms can stand up and speak to that type of capital. And as you start to deal with companies like the ones you mentioned, right, counterparties matter. These are highly structured transactions, what are, in essence, partnerships, and so who these companies are partnering with to get these transactions done really matters.

Thank you. Our next question comes from the line of Bradley Hays with TD Cowen. Please proceed with your question.

Hi, it’s Bradley [Indiscernible] on for Kanz. You spoke a bit about originations driving capital solutions fees. Could you give us a bit more color on the step-up in originations in the quarter, and in particular, how the non-U.S. origination opportunity contributed to that? And how we should be thinking about the go-forward pipeline?

So I'll do a little bit and then I'll hand it over to Scott. So if you think about what we've done and you think about the world, we've done something for Sony. We've now told Corporate Japan that this is an opportunity. AB InBev, we've now told corporate Europe and Northern Europe we're open for business. Air France, we've now told that France were open for business. Vonovia, Germany, told them we're open for business. Intel with total technology and next-generation infrastructure were open for business. AT&T, open for business. What's happening is we are creating and watching the creation of a new market. The new market is being created, not just on the investor side where investors are actually considering fixed income replacement. It is happening on the issuer side. Rather than the issuer having a choice between bank debt and 10-year corporate bonds, the issuer now just has a third choice. We will not do every transaction. But the point is in the scale of the opportunity relative to the size of our business, we are watching accelerating growth. It will always be lumpy. You will always get the one big one in the quarter. But as a build and as a general trend line, we are watching private as a solution for capital needs take hold, and I like the way the strategy is shaping up. Governments around the world are going to borrow an awful lot of money over the next 10 years. We are going to have crowding. Banks are being asked directly or indirectly to stick to that, which is more matched to the shorter-term funding base, and they are generally not the right home for really long-dated capital. That leaves only two choices because capital -- credit in our economy comes from only two places. It comes from the banking system or the investment marketplace. In the investment marketplace, it can come from the public daily liquid market or it can come from the private match funded market. Not everything is going to end up in the private match-funded market, but an awful lot is going to, particularly given the three big drivers of capital.

Yes. And just to your specific question, the -- I mean -- it should come as no surprise. We've been -- for the last two years, we've been talking about how the single most important thing we've been doing is scaling our origination capabilities in breadth and geography and category. And that's exactly what we have been doing. And an offshoot or ancillary item to origination is ACS and some of the excess that we don't consume across our controlled balance sheets, go through that ACS system. And so we've similarly been building our capabilities there. If you look at our ACS P&L, it's represented by literally hundreds of transactions. As Marc alluded to, once a quarter, there are one or two big ones, but the vast majority of what's flowing through that are just smaller trades that build up to work our quarterly earning there. And that's what you're seeing. We continue to invest in both the origination and the ACS side of our business, and we'll continue to invest in those areas because that really is the engine room, if you will, of everything else that we're talking about on the Apollo platform.

Thank you. Our final question will come from the line of Ben Budish with Barclays. Please proceed with your question.

Hi, good morning. Thanks for fitting me in here, again. I wanted to just ask on the capital markets fees. You alluded to a very strong back half of the year. I don't know if it's too early to ask, but any color on what 2025 looks like? I don't know if the pipeline kind of stretches out that far. And I guess what I'm trying to get a sense of a -- or better understanding of is to what degree does the back half of this year look like, an explosion of sort of pent-up demand versus a return to normal and what that might mean for the fiscal 2025? Thank you.

Ben, it's Martin. So we -- the visible pipeline of business is about two quarters ahead, which you would probably expect. The business continues to grow. We're building our capabilities, geographies, awareness around the products and aligning the sort of supply, if you like, with demand for that. And so -- and as you recall, from the origination and platform sort of spotlight day we did almost a year ago, there are multiple homes for everything we originate. Pie goes to Athene, to its investment-grade portfolio, pie goes to third-party LPs through funds or managed accounts for which we earn a management fee and pie goes to capital solutions for which we own a transaction fee. So that makes that sort of equilibrium, if you like, holds. And as we grow the supply side, we can grow the demand side. But we would expect the business to continue ramping from here to answer your question briefly. It's an ecosystem. We have an advantage. It continues to build, and we're very enthusiastic about the growth from here.

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

Great. Thanks again for joining our call this morning. As usual, if you have any questions about anything we discussed on the call, feel free to follow up with us. And we look forward to hosting you and are excited for you to join us for our Investor Day on October 1st. Thank you.

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.