Apollo Global Management, Inc. (APO) Earnings Call Transcript & Summary

All right. Hello, everyone. Welcome to our next session. I'm Ben Budish, I'm Barclays' analyst covering the U.S. brokers, asset managers and exchanges. And for this chat, we've got Martin Kelly, CFO of Apollo. Martin, thanks so much for joining us.

Thanks, Ben. Thanks for the invitation.

Maybe just starting with a high-level question in terms of business execution. So you're almost 2 years since your merger with Athene. How do you feel like you're executing on the 5-year financial targets initially laid out in the October 2021 Investor Day? And where are you seeing the most momentum in the business, thinking about both asset management and on the retirement services side?

Good question. Thanks, everyone. Thanks for coming along. It's actually really interesting. It feels like it's been a lot longer than 2 years since we did the Investor Day. But it's -- and it's actually quite remarkable how much we've accomplished in that period of time. So we actually feel great. We feel great about what's behind us. And you can see that in the financials. And we're as enthusiastic about what's ahead of us as well. And so I think financially, we achieved some of our 5-year targets in 2 years. So you should expect further growth from there. In particular, Athene's business has had a terrific 2 years, is running at higher than their targets 2 years in. And we've been pretty specific about guiding to an earnings metric for the year of about $3.3 billion of spread earnings. And so that's up from less than 2 -- just 2 years ago. And then FRE asset management business is doing great. It's doing exactly as we planned, low double-digit growth last year. And we're guiding to 25% this year. Within that, certain businesses like our capital solutions business have also achieved their 5-year plan in 2 years. So I think financially, we're well on track with the targets we laid out. I think what's really important is the clarity of the strategy today is much more apparent than it was 2 or 3 years ago. And I think we keep looking back to the big three priorities that we laid out: capital solutions, global wealth distribution and the origination platforms. And each of them are on track or better. And I think behind that, there's now six or seven other priorities that we've been speaking about. And each of them have a plan. And each of them -- many of them actually are in some way dependent on the merger. And so I think it then brings us back to the alignment between asset managers and the private [indiscernible] that the merger brought about. And I think that the thesis for the merger today and the benefits on the combined are clearer frankly to us but definitely to people we interact with outside the firm. So we're really focused on it's not 1 quarter or 1 year but building sustainable growth in our earnings over time. And so I think when you move the [ three and the six ] and look at the comments we're making about actually seeing different distribution arrangements and new product development and technology to distribute products, it's all with a line to creating sustainable growth over the time frame. So long answer, but we're sort of halfway through. Really, really pleased with what's behind us but as excited about what's ahead.

Great. Maybe let's dig into some of those. So maybe starting with sort of origination and the broader fixed income replacement theme that Apollo has been talking about for some time. Maybe to start off to level set, what exactly do you mean by fixed income replacement? I think we're all now aware, inundated with private credit. But how do you guys think about fixed income replacement? And how does that differ from what we typically think of as private or alternative credit?

Yes. It's actually -- it's really interesting. I think there are so many different definitions out there of what private credit is. And what I think the predominant definition of private credit as defined by the market is direct lending and distressed -- it's three or four things: direct lending, distressed credit, pieces of commercial real estate debt and pieces of mezzanine credit. And the TAM for that aggregation is about $1.5 trillion. What we've done pretty specifically and transparently is to find private credit much more broadly as fixed income replacement. And it's predominantly an investment-grade business. And it's -- we think if you look at the broadest definition of fixed income globally, which is about $150 trillion market, and take out of that, govies, agencies, mortgages, investment-based corporate bonds, most securities with a CUSIP on them, you get down to -- and then you haircut that, we think that the investment-grade fixed income business is about a $40 trillion business. So that's trade finance, it's equipment finance, it's leasing, it's commercial finance, consumer finance, all structured to be investment grade but a much vaster opportunity for us. And so that leads into sort of supports a number of the sort of the next six initiatives that we've been talking about. It's also the focus of our platforms. We have 15 platforms today that originate credit. They're all focused on originating credit. And Atlas, the Credit Suisse platform, is the most recent and probably the best example of that. But it's an investment-grade lending platform. It's a warehouse lender to other lenders structured with LTVs and interest coverage to the investment credit. And that's what we've done across the other 15 or 16 platforms. So we think that feeds our third-party insurance strategy. It feeds our indication business. It feeds our asset-backed finance business to come. And so having a core capability in originating private credit, of which the platforms are about half of the overall effort is really important. And we think it's a real distinct, competitive platform.

All right. Kind of following up there, one of the opportunities that was discussed in the last earnings call was sort of the ability to now serve the fixed income bucket of your traditional LPs, not just the alternatives bucket but the broader fixed income base. I think you think about this as part of the larger TAM. But how big is that opportunity specifically with your existing clients? And what does it take to get there? Is it just a series of making phone calls to the fixed income manager, not the alternative manager? How do you get from where you are today to penetrating that opportunity?

So very bluntly defined, the average allocation is about 20% equity alts, 30% fixed income and 50% everything else, equities, private venture capital, real estate infrastructure, et cetera. Most of the fixed income, like the far, far majority of that fixed income, 30%, is liquid securities in a structure that doesn't need liquidity. And so if you can provide an alternative with [ low ] risk but less liquid to yield outperformance, so 100 to 200 basis points, which is the whole construct, then you have a massive addressable marketplace in the fixed income component of LP allocations. And so it is a question of sort of walking into a different office. Our whole business has been focused on the office allocates alts 20%, but we see a much vaster opportunity in income replacement, fixed income office and providing appropriate risk-returns and similar risk-return investment grade but for an outperformance in yield, given the lower liquidity, which many of the LPs don't need or want.

And on the origination side, maybe again thinking high level about Apollo, can you talk a bit about the path to achieving the target of $150 billion in annual origination dollars across traditional high-grade alpha, your platform origination? I think you currently have 16 platforms. You've indicated a handful are fully scaled. How much volume growth comes from scaling the rest, incremental M&A? And maybe you mentioned Atlas, can you kind of touch on where you are with that integration and the ramp there?

Yes, sure. So the $100 billion or so that we're producing today is roughly 50% of the platforms, [ so the 15 ], and I'll come back to that, and 50% everything else. And the everything else is large-cap corporate lending. It is commercial real estate origination, debt origination, it's CLO origination. It's the rest of the sort of the [ core ] franchise. And so to get from $100 billion run rate today to $150 billion run rate over time basically requires the platforms to double. If we can make the 50%, 100% with no more growth in everything else, which is probably conservative, I think, then that's the path to get there. So what we're all about -- if we look at the 15, 16 platforms today, 4 or 5 of them are scaled and account for the majority of the assets. And then the rest are either scaling or [indiscernible]. What we're really focused on is where we can get scale out of the remaining platforms. It's probably not a question of finding a lot more platforms and going into newer asset classes than it is growing what we have. That may be combining what we have but getting more scale and efficiency out of what we have. If we look at Atlas, Atlas alone can probably get us most of the way there, I think. And so that's a -- to your second question, the business is onboarded, extracted from the CS infrastructure. The team is in place, business is strong. Atlas has actually originated about 30 securitizations this year since we closed the transaction. And so -- and it's a really interesting business. It's a lender-to-lender. There's 300 borrower relationships within that ecosystem covering both consumer and commercial finance. And so we -- in the form of mostly warehouse funding. And it's basically structured to be investment grade. So all of the warehouses have LTVs that get each individual warehouse up to an investment-grade rating. And then it's just a question of what we do with it, how we bundle it and tranche it and distribute it. And the homes for that distribution multiple and create different fee revenues for us. But the basic thesis is to grow that [indiscernible]. And so that will also help our asset-backed finance business as we get that off the ground. But most of the growth comes from -- in our base plan comes from the 15 platforms, of which most of that comes from Atlas.

Great. You touched on it just briefly. But can you maybe walk -- you mentioned the fees. Can you walk us through the revenue model for the whole platform origination ecosystem? Are you earning syndication fees? Do these assets end up in a public funds, where you're earning management fees? How much is going on through Athene's balance sheet? How does it all spool up in the P&L?

Yes. This is -- if we look back to when we did the Investor Day, this is the piece that was the least understood in terms of translating sort of effort to revenues. It's clear if you go to the global wealth business, it comes with a fee rate. And you can sort of put that into a perpetual revenue stream. And it's also clear if you grow a syndication business, given volume assumptions, you can create a fee business. The origination business, I think, has become clearer. I actually think the CS business has really catalyzed in people's minds what this is all about, this whole strategy. But our basic premise is we want to have significant skin in the game in the form of what we take under Athene's balance sheet and distribute the rest. And so the basic construct is keep 25% of everything and distribute the other 75%. That alone provides a real alignment benefit that LPs look at and sort of recognize that if we're taking that much risk on our own balance sheet, then we sort of -- we stand behind the credit. The [ guide ] work and the underwriting standards that are sufficient standards. So where does the other 75% go? Well, start with the 25%, 25% goes on to Athene's investment-grade balance sheet. With that yield, it creates the SRE that comes through our overall [ letters ]. So that's relatively straightforward. The other 75% goes to other insurance company buyers of investment-grade-rated paper, for which we earn a fee, upfront fee and then that's it or -- and/or it goes to third-party managed accounts, for which we earn an ongoing management fee. And I think increasingly in the future, it will go into our third-party insurance business, which will be effectively a customized managed account for insurance companies and to support our asset-backed finance business. So 25% by dollar volume creates SRE. And then the rest has been more weighted towards capital solutions fees to date. But with an increase in that business over time, I think there will be an increasing amount of management fee growth that comes from that throughput.

Great. Maybe moving over to the asset management side of the business, so maybe first, with fundraising, how would you characterize the current fundraising environment for the more traditional drawdown funds? How are LPs thinking about asset allocations? Are there still lingering denominator effect issues? Or is it more about kind of capital return? What's sort of your high-level take on the environment there?

Yes, so we closed Fund X at $20 billion. And we're actually very happy with that. It was not the $25 billion that we set out for. But in the market that exists for PE flagships, it was a great result. I think what's happening -- like the environment is definitely more difficult than it was a few years ago, without a question. But I think it rewards managers that have quality products and good returns. And so it all comes down to sort of risk-return trade-offs and how LPs want to allocate their capital. So if I look at what we're in the market with today institutionally, part of it is just the next vintage of existing families, all of which are performing well and all of which are -- fundraising is going well as expected and without the headwinds that I think the whole market has experienced on PE flagships. And then there's innovation and there's the new products, part of which are Apollo-led, where I think we have a distinct advantage like AAA, unlike asset-backed finance. And then part of it is just market evolution, where the market is leading -- is going in terms of climate finance, transition, secondaries and the like. So if we look at -- and we can talk about retail separately. But as we look at the market for institutional capital raise, Fund X is done and behind us. The pipeline of other funds in market is really healthy and diverse and fundraising is going well. So I think this year, we'll raise more than last year. Last year, we raised more than the year before. And so it's -- and part of that is product design, part of it is distribution. But it comes back to the comment I made upfront, which is incremental growth over time to create a sustainable increase in inflows in the [indiscernible].

Maybe looking forward, part of the strength in the third-party fundraising is coming from progress on your kind of next six organic initiatives. Can you kind of remind us what those are and maybe highlight any significant wins from this year?

Sure. I'll try to get the six right. So firstly is AAA. So AAA, which has probably had the most attention, AAA is the equity alternatives portfolio of Athene, which has been branded as AAA and is now being marketed to both institutional and retail investors. And so this is a portfolio that brings with it expected 11%, 12% returns over time. And it's not public equity, it's not venture capital. It's not the typical type of equity investments that insurance companies own. It's about half platforms, so the same three platforms that create the origination, including Atlas, including mid-cap, our direct lending business, including Wheels Donlen, our fleet leasing business, and [indiscernible]. Most of them are in some way, in some part owned by AAA. Investments in other insurance companies like Athora and Challenger. And then it includes investments in a whole collection of Apollo-related funds. And so the benefit for [indiscernible] as I look at that is it's a fully invested portfolio day 1 with J curve, diversified. It actually has more fixed income characteristics than it does equity because the underlying portfolios are investment-grade lending platforms for the most part. And so that business has had a lot of attention both in institutional and retail channels and within retail, let's say, family office has been particularly interested in it. So that product over time, we think -- we've said this before, we continue to believe that this should be and can be our largest fund over time. And so that's a question of balancing Athene's ownership of it with third-party ownership of it, which we think is probably 50-50 over time. So as Athene grows, that portfolio definitionally grows. And then we'll bring in third-party capital to create growth in that portfolio. And then it becomes a question of portfolio allocation and where we invest the capital. So that's one. I'll try to do this more quickly. So Altitude is a product that we've branded as an annuity wrapped series of credit products. And so this is much more nascent. It's at the stage of development and discussions with distributors. But the basic construct, which I think is very appealing, is to offer Apollo credit products within an annuity wrapper, so tax deferred in a retirement account, accessing single-digit up to low double-digit type of turn businesses. [indiscernible] will have, I think, appeal and traction over time. Third-party insurance is important to us. We've -- up until now, we have -- most of what we can produce Athene won or Athora won. And so now with the 15 platforms and the other business via credit, we have excess production. So we onboarded about $7 billion of AUM from third-party insurers in the first half. And so our whole contract here is to focus our private credit origination, as we define it, into a package, which is appealing to third-party insurers. And there's no reason this can't be a successful business. It's going for Athene for 15 years. And so part of it is access to interesting credit, part of it is the support that an insurance company needs in statutory and other reporting. So that's three of the six. Four is sidecars. Sidecars are just customized accounts that come in and invest in a parameter of investing criteria[indiscernible]. We've raised about $1 billion in that strategy this year. What am I missing? Climate, climate and secondaries. Thank you. So climate, climate is very interesting. We all read the statistics on how much transition financing the world needs. And it's trillions of dollars per year for decades to come. So climate is a business that is both -- it's actually three things. It's equity business, a hybrid business and a debt business. And so it is offering -- it's offering financing solutions to companies to transition and to provide capital, which is in short supply from other sources. And so that business, I feel particularly enthusiastic about. We've raised $4 billion of capital for it at the start. And then lastly is our secondaries business, which is also a couple of different things. It's equity secondaries, credit secondaries and GP financing. And it's to deal with continuation funds, GP [ monetization ] in both the equity and the credit space and also includes NAV financings, which we see as a particular opportunity. So we've also raised $3 billion or $4 billion of capital for that effort as the start to that business. So that's the six. I would add a seventh, which is asset-backed finance, which we think is a massive opportunity and is fueled by the origination that the platforms create, starting with Atlas but all the others as well.

Great. Well, that was very thorough, appreciate it. So maybe putting this all together, thinking about your 2026 FRE per share target sort of implies like a 16% 3-year CAGR. AUM, growing a little bit faster, driven by the sort of lower yielding -- the lower yield segment. Maybe just kind of bringing some of those pieces together and maybe talk a bit about how much of the effort fee growth comes from, operating leverage, broader fee-generating AUM growth and the capital solutions business kind of from here to 2026.

Yes. So I'll make a few comments. The basic math is create close to mid-teens revenue growth plus operating leverage gives you mid- to high-teens FRE growth over time. Our margin today is around 55%, 56%. And over this time frame, we see it stepping up in a pretty linear fashion actually to about 60% or a bit better. So that's the math. I think the interesting thing about our business is all of the initiatives that we just spoke to, the six plus the asset-backed finance, and actually most of the initial three, are being funded through P&L, OpEx. And so we've -- when we did the Investor Day 2 years ago, we laid out a $15 billion investment capacity target, of which $5 billion was earmarked for strategic growth. We actually haven't spent much of that. And we haven't really seen a need to spend much of it. We bought a retail distributor, Griffin, and we're having some investments in retail technology platforms. But we've significantly underspent on that. We've also spent, I think, on M&A. And so what we -- we're thought of as a sort of capital-heavy, balance sheet-heavy company by some. We actually think we operate in a very balance sheet-efficient way. All of those initiatives, for the most, or for the one I mentioned, are funded by P&L. And so every year, and we're doing it right now as we go through a multiyear planning cycle, we lay out what we think the growth priority should be, how we're going to fund it and prioritize it. But the funding all comes through P&L. So we absorb the cost before the revenues. We lay it out and sort of sequence it in a way that we can accommodate the targets that we've laid out.

Great. Maybe one last question sort of under the asset manager umbrella. In the capital solutions piece, you're running nicely ahead of your longer-term target of $500 million annually by 2026. So maybe what's gone well here? How has this business kind of evolved? And is it perhaps a framework that investors could apply to think about, like how big could it be as a percentage of your AUM or transaction volumes? Or how should we think about like what the potential is here?

Yes. This is a -- it's a great business. And it's developed much more quickly than we thought. We actually think it's much more stable in terms of fee profile than is understood. And if we look at the business, if we look at the construction of transactions that contribute to that, it's a series of securitization flow-type transactions from the platforms, including Atlas. It's a whole variety of credit financings. And then it's a little bit of co-invest capital. And we think that all three can grow over time. But if we look at the construction today, the far majority of capital that's creating those -- capital being syndicated that's creating those fees is credit. And the majority of that is investment grade. So I actually think it's quite a different business from what some of our peers have in the sense that it's focused on sort of investment-grade credit. And while I think each of those three components of it can grow, the business is nicely diversified. It's corporate coverage. It's sponsor coverage. It's growing outside the U.S. And so we see sort of growth at the channel level. We also see growth in Europe and Asia. And so we're not updating our targets for the business yet. But I think it is an area -- certainly where we are is not where we intend to be going forward.

Great. Maybe moving over to retail. So I feel like I've heard Marc say it several times, he thinks client portfolios -- retail portfolios could be 50% allocated to alternatives. So with that in mind, maybe to start, how much of your flows today come from the retail channel? And where are you in terms of building out your distribution?

Yes, I think this is probably our most complex new business development. And it's going well. We raised $6 billion last year. We have said we'll raise $15 billion per year by '26. We're well on track to do that. So I think the targets are modest and certainly achievable. It requires four or five or six different things to happen together to make this business successful. And so it comes back to the same comment, which is putting in place the components to create incremental growth over time. Part of it is product design. And so within that, part of it is making sure we have products that the market recognizes and part of it is creating distinct products that bring a particular advantage because we're offering something that's unique in the market. Examples in that regard would include AAA and Altitude and asset-backed finance. Part of it is offering a combination of typical sort of drawdown-style funds with some investors, retail investors. Part of it is the venture capital funds. And part of it is technology, making sure you have the right technology distribution, so investing in platforms that can create scale and operational efficiency. And then there's distribution and making sure -- and education actually. So we have one, Apollo Academy. I'd encourage you to look at the website. I think it's a really good primer for investors to look at what we offer to retail investors. And distribution agreements just take time. We're building on different warehouse distributions that create product shelf, realizing that there's not going to be that many firms that can get space on the shelf, so we want to be one of those firms. So we have -- I'd say, stepping back, we have the right leadership in place in each of the geographies. We had five products in market at the start of the year, we now have seven. We're going to add one a quarter or something like that. It's getting a lot of focus internally. But it's one of these things where it just takes -- each quarter is better than the quarter before. And it's just an incremental growth over time.

And can you maybe drill into AAA just a little bit? I know we spent some time talking about that earlier. But I think you recently mentioned private bank platforms with more in the U.S. and internationally slated to come out in the second half. Obviously, you kind of said here and have said previously, you think it has the potential to become Apollo's largest fund. So maybe just more recently, what have kind of retail flows looked like into that fund? And what does the sort of trajectory look like as you approach that target? Is it sort of more penetration with an existing distribution partner, more wider distribution? And how do you kind of get there?

Yes, it's all of the above plus family offices, so -- which is a separate effort but related to it. So each quarter, we have seen incremental growth or margin growth in the inflows. And so I think in the last quarter this year, we should be running at north of $500 million. I think we should be running at $3 billion to $4 billion of retail demand. So same story, just build it and build it incrementally each quarter. And it gets traction and you get access to different channels. And the growth should step up over time. At the same time, balancing that with wanting to make sure that Athene always has something close to 50% ownership in the structure. But this is -- like back to the capital efficiency point, this is something which is becoming, I think, better understood but not fully understood. Most of the platforms that we own today are on AAA. And so we have very few needs to spend holding company capital because we have other forms of capital. AAA is one, ADIP and ACRA as the equity sidecars to Athene are another really good strategic use of capital. But AAA can provide a very attractive risk-return to investors while at the same time getting platforms that create origination fee, SRE and then syndication fees and management fees.

Great. Let's move over to the retirement services part of the business. So in terms of Athene's flow outlook, you guided to $60 billion-plus of inflows this year. So what are the key drivers? How much of this is from expanded distribution, higher rates driving just more demand on the retail and PRT side, M&A environment for inorganic blocks? And maybe thinking longer term, how sustainable will it grow into '24 and beyond?

Yes, there's a lot there. So I would say certainly higher rates are effective for the opportunity to sell annuities. And so the whole market has seen an increase in volume of sales. What we've not seen this year ourselves is funding agreements. And because spreads have been wide, we don't need to issue funding agreements that don't produce an attractive ROE. And we have not seen for some years now inorganic transactions in the U.S. And that's just -- it's an incredibly competitive marketplace with 100 people chasing the business. And we don't need to compete in inorganic transactions. So with both of those sort of footnotes, the business has grown. And we're guiding the business to be a $60 billion-plus business this year, which is really fueled by annuity growth, by reinsurance transactions and by pension risk pension group annuities transactions. And so each of them have grown principally in the U.S. this year. And so part of it is high rates. Part of it is access to different distribution. We've been -- up until now, most of the annuity distribution by Athene has been achieved through IBDs and RIAs. We've recently been launched on the JPMorgan and UBS platforms. And so that's the start of, I think, further warehouse distribution. And so even with our production today, it has effectively 0 contribution from those two platforms. So more to come there and then more to come from two, three, four other platforms that we're in dialogue with, which should hopefully come online over the next 6 to 12 months. So the annuity business, I think our competitive advantage in that market is, a, our ability to run excess spread on the asset side and our low-cost structure. And it just makes us very competitive in the marketplace. So the annuity business is sort of run rating to higher levels in the U.S. The pension group annuity transaction business, without question, higher rates have helped the funding status of pension plans. I think our rating -- there's really three players in the market for PRT. We're one. And I think our rating -- increases in the rating over the last few years has really helped our ability to be a counterpart to corporate pension plans. So that market, which is about $50 billion last year across the market, we think is sort of fertile in terms of further transaction growth, not just here but outside the U.S. as well. And then reinsurance is benefiting from the overall growth. It's a flow business, so it benefits from the overall growth of the business. But then we look to Asia. And so Asia for us in Japan and in Korea, Taiwan, Australia, Hong Kong, we think we see meaningful growth over time. So same story, incremental growth, putting in place new products, new distribution arrangements, that can make sure we have a sustainable flow of production increasing year-by-year.

Great. And can you talk a little bit about Athene's various sources of capital? So for example, you recently issued a $1.4 billion convertible bonds that was expected to support growth in the retirement services business. So what's -- what are your thoughts on the overall expected pace of deployment and the overall impact of this additional capital? Was this sort of contemplated in the '23/'24 guidance? Was this anticipated? Or is this kind of additive on top of what you provided last quarter?

Right. So Athene has 30% earnings growth for each of the last few years. That's not sustainable. But what we're now guiding to is our long-term target. So that's on the earnings guide. I think we'll provide the guidance to connect all the dots later in the year. But we do feel [indiscernible]. It's a rich environment to be originating liabilities. Our platform and other origination businesses and the asset allocation paradigm that connects that to liability production is creating really attractive ROEs. And so we see really meaningful growth in the business. So the convert, the mandatory, if you look to the use of proceeds, if you like, are to create growth at Athene above and beyond what we're seeing today. And then that fits into the overall capital allocation framework, which is we want to be a regular buyer of our stock above and beyond employee comp immunization. We want to be competitive in our dividend. And we think that's important for S&P. And so we increased our dividend this year. That's the start of what's going to be programmatic. And then we want Athene to continue to pay a dividend upstream to the holding company to [indiscernible]. We want that practice embedded in the discipline of how that business is running, including with regulators. So there's a lot -- and we're not saying [indiscernible] I spoke about is strategic growth investments. There's just not that much that we find interesting to do. So there's plenty of organic growth. And capital allocation will follow that paradigm. But if we -- the interesting thing is if you look at -- if a decision for us is to invest more or less in Athene, which you can think of as [indiscernible] of injecting capital down or adjusting the dividend. When you pay the return on that capital, if the return with the contribution from ADIP, the equity sidecar, you get to a 20% or better return on equity when you consider the SRE accretion from that additional business as well as the FRE accretion from managing the assets. And the FRE benefits are the same, regardless of whether the assets sit on Athene's balance sheet or they sit on the balance sheet of the sidecars. So that growing of Athene is really attractive from an earnings and an ROE perspective but so is buying back stock. At a high-teens growth rate at today's multiples, buying back stock is also attractive. So we have good choices. And we thought that issuing the convert would help preserve those choices. At the same time, Athene is underlevered and has the capacity to issue more debt if the environment presents itself. But that's not where we want to be right now.

Great. I guess, I have time for one or two more questions. So maybe we'll return to something you mentioned earlier about the possible seventh of your kind of next six, which is asset-backed finance. You talked about a $20 trillion opportunity. How does that evolve over time, those sorts of assets? What's the company going to be looking like? Who are the eventual owners? And how important are Athene, your third-party insurance partners and the broader theme about taking assets or partnering with regional banks [indiscernible] assets? How long does this all take to play out?

Years, decades. I think it's -- we are a good owner of assets. And so we want to be a partner to banks that wants some balance sheet capacity. So it's a similar set, talked about the $150 trillion that's [indiscernible] in fixed income replacement, it's a similar set. It's a subset of that, but it's covering many of the same asset classes. So we can -- our plan is to have a fund franchise around this. But as long -- but the only way you do that is to create origination. And so making sure that the platforms are set up to create origination, making sure we've got partnership with banks that create assets to play, partnering with banks in most cases to do that in ways that are advantageous and economical to both is what we're really focused on.

Maybe with just our last minute here, one more question on a completely different topic but something that is topical overall. How do you see developments in AI tech impacting the financial services industry? And how are you -- or are you currently planning to incorporate it into Apollo? And you can give it in like 30 seconds.

I have 36 seconds. I think it's a large opportunity over time. I think it's -- it has lots of different applications for companies like us, fee companies [indiscernible] within the firm from an investing perspective as well as how we run the firm operationally, each of the big platforms that we own. I also think it comes down to data. And is data in the right place with the right governance around it? And is it high quality enough that you can trust it to use to make a decision? And I don't have that. I think it's challenging. So I think it all comes back to data and data governance and use cases. I mean, there's lots of hype around this. But you need to look at actual use cases and how can you actually use this in a way that you can trust it to create efficiency and make decisions. And so I think that's where the rubber is going to hit the road. We've spoken to all the consulting firms, all the accounting firms, many of the tax firms, the law firms about how their clients are doing this -- and use cases are [ hard ]. So I think it's going to take some time.

Great. Unfortunately, we're out of time. But Martin, thank you so much, appreciate having you.

Appreciate it. Thank you.