10-Q: Apollo Global Management Reports Third Quarter 2024 Results, AUM Reaches $733 Billion

Apollo Global Management's third quarter 2024 results show a significant increase in revenues driven by investment gains and growth in assets under management, reaching $733 billion.

Summary

• Apollo Global Management reported a net income attributable to common stockholders of $787 million for the third quarter of 2024, compared to $660 million for the same period in 2023.
• The company's total assets under management (AUM) reached $733 billion as of September 30, 2024, reflecting growth in both credit and equity strategies.
• Fee-related earnings (FRE) for the asset management segment were $531 million, up from $472 million in the third quarter of 2023.
• Spread related earnings (SRE) for the retirement services segment were $856 million, a slight decrease from $873 million in the third quarter of 2023.
• Principal investing income (PII) was $78 million, a significant increase from $4 million in the third quarter of 2023.
• The company's net investment spread for the retirement services segment was 1.83%, a decrease of 30 basis points compared to 2.13% in the third quarter of 2023.
• The company's effective income tax rate was approximately 15.2% for the third quarter of 2024, compared to 27.5% for the same period in 2023.
• The company's total revenues were $7.8 billion, an increase of $5.2 billion from $2.6 billion in the third quarter of 2023.

Sentiment

Score: 6

Explanation: The document presents a mixed picture with strong AUM growth and increased revenues, but also a decrease in net investment spread and higher expenses. The overall sentiment is cautiously optimistic, with some concerns about the impact of market conditions and regulatory scrutiny.

Positives

• Apollo's asset management business saw a 12.5% increase in fee-related earnings, driven by growth in management fees, capital solutions fees and fee-related performance fees.
• The company's principal investing income increased significantly, driven by higher realized performance fees.
• Apollo's total AUM increased to $733 billion, reflecting strong capital formation across Athene and third-party clients.
• The company's net income attributable to common stockholders increased by 19.2% year-over-year.
• The company's total revenues increased by 199.5% year-over-year.

Negatives

• The retirement services segment experienced a slight decrease in spread related earnings, primarily due to higher cost of funds and interest and other financing costs.
• The company's net investment spread for the retirement services segment decreased by 30 basis points year-over-year.
• The company's effective income tax rate decreased to 15.2% for the third quarter of 2024, compared to 27.5% for the same period in 2023.

Risks

• The company's businesses are subject to extensive regulation, which could result in significant liabilities and penalties.
• The company is exposed to market risk through its investment portfolio, counterparty exposures, and hedging and reinsurance activities.
• The company is subject to litigation risk, which could result in significant liabilities and reputational harm.
• The company's performance is affected by the condition of global financial markets and the economy, including price fluctuations, interest rates, and inflation.
• The company's ability to execute its business strategy depends on its ability to establish new funds and raise additional investor capital.

Future Outlook

The company expects to continue to grow its AUM and generate positive investment performance, which will allow it to grow its management fees and performance fees. The company also expects to grow the investment portfolio of its retirement services business, which will allow it to cover its long-term liquidity requirements.

Management Comments

• Management believes that the company's current liquidity position, together with the cash generated from revenues, will be sufficient to meet the company's anticipated expenses and other working capital needs for at least the next 12 months.
• Management uses Segment Income as a measure of operating performance, not as a measure of liquidity.

Industry Context

The document indicates that institutional investors continue to allocate capital towards alternative investment managers in search of more attractive returns, and the business environment remains generally accommodative to raise larger successor funds, launch new products, and pursue attractive strategic growth opportunities. The document also notes that the financial services industry is the focus of increased regulatory scrutiny.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards, but it does note that the company's private equity funds have historically generated a 39% gross IRR and a 24% net IRR on a compound annual basis from inception through September 30, 2024.
• The document also notes that the company's net investment spread for the retirement services segment was 1.83%, a decrease of 30 basis points year-over-year, which may be compared to other companies in the retirement services industry.

Legal Proceedings

• The company is party to various legal actions arising from time to time in the ordinary course of business, including claims and lawsuits, arbitrations, reviews, investigations or proceedings by governmental and self-regulatory agencies regarding the company's business.
• The company is involved in ongoing litigation related to SkyTerra Communications, Inc., MPM Holdings, Inc., and PlayAGS Inc.
• A shareholder derivative complaint has been filed against current and former AGM directors challenging payments made in connection with the elimination of the Up-C structure.
• A class action complaint has been filed against AGM alleging that certain provisions of the stockholders agreement violate Delaware law.
• Certain of the company's investment adviser subsidiaries have received a request for information and documents from the SEC in connection with an investigation concerning compliance with record retention requirements relating to business communications sent or received via electronic messaging channels.

Related Party Transactions

• The company has various related party transactions, including management fees, transaction and advisory fees, and reimbursable expenses with the funds it manages and their portfolio companies.
• The company has a tax receivable agreement with its Former Managing Partners and Contributing Partners.
• The company has a cooperation agreement with Athora, and provides investment advisory services to certain portfolio companies of funds managed by Apollo and Athora.
• Athene has an equity investment in Atlas, an asset-backed specialty lender, through its investment in AAA.
• Athene has an investment in Apollo Rose II (B), which holds equity interests in Catalina Holdings (Bermuda) Ltd.
• Athene has investments in PK AirFinance, an aviation lending business.
• Athene has a minority equity investment in VA Capital, the parent of Venerable, and has coinsurance and modco agreements with VIAC, a subsidiary of Venerable.
• Athene invests in Wheels, Inc. indirectly through its investment in AAA.
• Athene's subsidiary, ACRA 1 is partially owned by ADIP I, a series of funds managed by Apollo, and ACRA 2 is partially owned by ADIP II, a fund managed by Apollo.

Stakeholder Impact

• The company's performance is affected by the condition of global financial markets and the economy, which can impact the value of investments and the returns for investors in the funds it manages.
• The company's retirement services business is exposed to market risk, which can impact the value of its investment portfolio and the benefits it provides to policyholders.
• The company's ability to execute its business strategy depends on its ability to raise additional investor capital, which can impact the returns for investors in the funds it manages.
• The company's performance is also affected by regulatory scrutiny, which can impact its ability to operate and generate returns for its investors and policyholders.

Next Steps

• The company will continue to monitor economic and market conditions that could potentially give rise to global market volatility and affect its business operations, investment portfolios and derivatives.
• The company will continue to evaluate and record applicable adjustments to deferred tax assets related to the Bermuda CIT.
• The company will continue to evaluate the potential impact on future periods of Pillar Two, pending legislative adoption by individual countries.

Key Dates

Keywords

Assets Under Management, AUM, Fee Related Earnings, FRE, Spread Related Earnings, SRE, Principal Investing Income, PII, Retirement Services, Asset Management, Alternative Investments, Private Equity, Credit, Net Investment Spread, Origination, Gross Capital Deployment, Uncalled Commitments