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

Okay. Well, great. Good morning, everybody, and welcome to the second day of Goldman Sachs Financial Services Conference. I'm Alex Blostein, and I lead the capital markets research here at the firm. We really appreciate everyone's time, attention. And hopefully, today is going to be just as productive and as informative as yesterday. To kick things off, it's my pleasure to introduce Marc Rowan, CEO of Apollo, one of the leading global financial services companies with robust capabilities across private markets and insurance. 2025 is shaping up to be another record year for the firm, and based on recent origination and fundraising activity, Apollo's momentum into 2026 also appears quite robust. So thank you, Marc, as always, for being here. It's a pleasure to have you here.

I think there's plenty to cover. So we'll just jump right in. Perhaps not surprisingly, my first question is probably going to be around private credit. And while I think you and many of your peers have addressed this at length really over the last couple of months, the market still continues to be a little jittery on this topic. So first, and I guess acknowledging that Apollo's activity is actually an investment-grade space for the most part, I'd still love your perspective on current state of private credit markets broadly. How are these headlines impacting LP appetite? And as part of that, maybe we can talk a little bit about the BOE and what the regulators are trying to do in sort of stress testing and how helpful might that be to the marketplace?

So look, we live in, I'll call it, mediatization of financial markets. And one of the things that's been frustrating to us is we have this term private credit and no one actually knows what it means. Everyone uses it differently. It covers a broad range of asset classes. And as I suggested to you before we came on, you're going to get a Christmas gift from us. It's going to be a giftwrap book. It's the definitive book of private credit. It will be on our website. So all of you will have access to it. And the first page says, why are we getting this wrong? Well, first is no one knows what private credit is, so we have to define it. And the second is people misunderstand private credit in the sense they don't understand the difference between a bank and an investor. So let me start from the investor point of view. Private credit direct lending, levered lending was a better business 4 years ago. It was a better business 3 years ago. It was a better business 2 years ago. It was a better business last year. But I also wanted to buy Navidea 4 years ago and 3 years ago and 2 years ago, and this is all about relative value. If you have an opportunity to move your money out of a high-priced equity market that is concentrated around 7 stocks and earn roughly long-term equity returns for first lien risk, that is a derisking trade for investors. That is what we're seeing. And when people say, well, there's risk in private credit. Of course, there's risk in private credit direct lending. We're lending to BB companies. Some number of these companies will default. But it's a fraction of the risk of equity, and it's a fraction of the risk of public high yield. So this is always about alternatives. People are not moving their money out of their treasury portfolio and into direct lending. They're moving it out of equity. And so what -- I think the market broadly does not understand is this is a derisking trade for the market. And I think the derisking trade is going to continue, particularly around equity volatility so long as private credit returns are good. Will there be defaults? Yes, there will be defaults. There have always been defaults. Will there be defaults in high yield? Yes, there have always been defaults in high yield. Not much has changed other than this media lens because what they're seeing is an overlap of "private credit and financial institutions." And that's now the divide. Most of what is inside of financial institutions, be it a bank or an insurance company, is investment grade.

So let's talk a little bit about that. So when you think about the growth opportunities for Apollo, and you made that point a bunch of times, we talked about it on the way in as well, origination. That's really the source of growth for the firm. So when you think about your recent trends, you've delivered really strong origination volumes for 2 quarters in a row with pretty stable spreads, I think, over 300 basis points over treasuries. You've effectively achieved your 5-year targets in the first year on that front. Maybe you're talking about...

You know what that means, of course, they just sandbag the target.

I've heard that. I think I've written that probably as well. Maybe I haven't used that term exactly. But let's talk about what's driving the strength so far? And I guess, looking ahead, when you look at areas that you're most excited about, what does that sort of look like? And what are some of the more emerging capabilities on the origination side that you think will be contributors over time?

So I'll say this. We've been highly focused on origination because we were -- we needed this 17 years ago for our balance sheet. And so we got a big head start on this whole notion of origination. And I think you're going to hear a lot today and if -- and hopefully, people understand, origination is actually the entirety of the business. There's almost nothing else. Yes, there's distribution, there are short-term trends. This is an origination business. The difference between a traditional asset manager and a private asset manager is a traditional asset manager, you give them any amount of money, they will invest it at the market. A private asset manager can only invest as fast as they create, originate. And so we have been hyper-focused on origination. And we have yet to achieve in the public consciousness this pivot from judging us and judging our industry, not so much on the capacity to grow AUM, but on the capacity to find assets that are worth buying. And so we originate 3 different ways right now. One is we have built a series of platforms, some $12 billion invested now of 5,000 people. That originate granular risk the way AGE Capital used to originate granular risk pre-financial crisis. The benefit of originating granular risk is you end up with higher rates of return and better control of collateral and better control of structure. And so platform origination is almost always our highest quality form of origination. The second is direct origination in the corporate market around the world. The demand for capital for -- from this global industrial renaissance that we're going through is just off the charts. If Microsoft wants to borrow, the cheapest place for Microsoft to borrow is on their balance sheet, drive by deals, low spreads, any amount, any day. That's not what's happening now. When you're doing data center deals or you're doing power deals or you're building a new defense plant or new manufacturing or infrastructure, these are project finances. Project finance does not generally go to the bond market. When you're talking about project finance in the broadest sense, if it's short dated, you're going to the banking system. The banking system is by far the most efficient place to go execute. If you want something long dated, you're generally coming to the private market. And what's happened is the scale of what we're doing is just off the charts. And everything that we're doing in the U.S., Europe wants to do and is less capable. And so relative to the size of the private market, we're seeing this massive need for capital that is mostly investment grade, that is mostly secured, that is mostly project focused, that, at the end of the day, ends up as a credit derivative of investment-grade balance sheets, just not on balance sheet debt. The third way we originate is with the banking system. The banking system has figured out that levered lending aside where the two, private and banks, are competitors, small market. But everywhere else, the banking system has figured out that we don't want their client because we can't monetize that client in any way. We don't offer advice. We don't offer M&A. We don't offer hedging derivatives, foreign exchange, custody, credit cards or any other service, all we want is the loan. And the bank balance sheet is ideally suited to do things that are short dated and highly rated. Our balance sheet is terrible for short-dated, but really good for long. And so we have now more than 20 areas of collaboration with different banks of different sizes to originate. But origination of risk is the limiter of growth in our business, not in the short term because in the short term, you can raise all the money you want, but eventually, if you don't invest it well, your franchise is diminished.

Can we double click into one of these areas, really financing the AI boom. And as you -- the way you and your -- many of your peers had described like this global infrastructure renaissance and that the demand for capital effectively has never been greater. At the same time, there are building concerns around valuation levels and the fact that maybe perhaps too much capital is starting to chase some of these opportunities. How are you navigating these dynamics? And I guess when you think about some of the bigger risks in the AI ecosystem, how would you frame that?

So it's going to be across not just AI, it's going to be across everything right now. There is a difference between a principal's mindset and an agent's mindset. If you are an agent and you are originating anything to do in AI and data today, you have 100% confidence that you can distribute the risk. And we're seeing some of that. If you have a principal's mindset and you're going to own the asset for a long period of time, you look at everything through a different lens. So if you now drill into the notion of AI and data centers, what are we really talking about? Anywhere we go in the world, heavy users of compute, you ask them, what do they need to move faster? And the answer is always the same, more compute. When are they going to get more compute? No time soon because there are natural limits and there are energy limits, and there are regulatory limits and zoning and everything else. What does that tell you as a credit investor? Wearing my credit hat for the moment. It tells me that the risk I'm prepared to take is lease-up risk. The risk I'm not prepared to take is renewal risk. There's a chart on the wall of my office, which is the projection of energy usage in 2030, not -- and Bain, McKinsey, every great firm, the spread is like a child throwing darts. If the experts in this have no idea on energy use, much less chip use, compute, the impact of quantum, do I really want to with, my credit hat on, take renewal risk? No. And so this is now, I think, the bifurcation of how you think about AI and how you think about data. With your credit hat on, if you -- there's plenty to do without taking renewal risk. With your equity hat on, initially, you were able to get equity returns inside of a nonrenewal period. That's no longer the case. You are now making fundamental bets on renewal. And I don't think that's either good or bad, but they're bets and there will be high volatility in outcome. And so let's make sure we're looking at this through the right lens. Credit is credit and the best you do is get paid back. Therefore, it is not a great place to speculate on renewal. Equity has the volatility of upside and the chance of losing everything. And yes, you can lose it all and prices are high. And I think there will be both great fortunes made and lost in the equity of data centers.

Let's talk about fundraising for a little bit. You guys obviously have been doing incredibly well on the origination side. That's driving really strong momentum on the fundraising as well. Embedded in your 5-year targets, I think really continuation of that particularly when it comes to credit management fees. Maybe talk a little bit about sort of sources of demand that are driving this growth, particularly from third-party institutional investors? And how perhaps you've seen the mix of clients and products that they're looking for evolving over the last few years?

So the client base broadly, particularly institutions who now have been in this market the longest period of time see pretty much what I see. We had one buyer of private assets for almost 40 years. And that buyer was the alternative bucket of our institutional clients. And when something is an alternative, you want really high rates of return, you want to watch it closely. You don't want it to be that concentrated. And that sustained the entirety of our industry for almost 40 years. Then we got the second thing called retail, wealth, and that is now going to double the size of the market. Then we got a third thing called insurance companies. People watch what we did and understood that the ability to own certain types of private assets inside an insurance company made sense. Three markets. Then we got a fourth market, which are institutions looking at their debt and equity bucket, understanding that private no longer meant alternative, that private was just private and could be investment grade or not. Then we got a fifth market, accelerated by BlackRock's purchase of HPS and Preqin, which are traditional asset managers who are looking for the next thing because active management has not been a great market, very difficult to sustain performance in active management, and they are hoping that the blend of public and private will help produce returns that beat indices. And then I think we're going to get a sixth market already indicated by the executive order in 401(k). So I see a building source of demand for our assets. And I come back to, over the short term, fundraising is really important. Over the medium term, I don't think it's going to be. I think we're going to figure out as an industry that we are not ultimately limited by capital. We are going to be limited by our capacity to originate risk that is worth originating. Any asset we originate today has multiple buyers, multiple times over. And that's the reality of where we are. And so fundraising is a derivative of our capacity to originate. The fact that we're at our 5-year target tells me we're -- so long as we sustain it and grow it, we should be able to fundraise as opposed to the other way around, which is how most of the world still thinks about asset managers, which is you raise the money and then you go find the asset. And I think when you see the evolution of our business in '26, as we peel back more and more layers of what we're doing, this notion of asset driven rather than fundraising driven business, I think it's just going to become clearer and clearer to people.

Yes. That makes a lot of sense. Why don't we spend a couple of minutes on the channels, the wealth market being obviously one of the more important growth drivers for you guys and the industry broadly. Apollo is making great progress here running at about $20 billion on annual -- in terms of annual flows. EDF, your direct lending fund has probably been one of the bigger drivers of that. A couple of questions there. How have the media kind of barrage of headlines around direct lending, impacting financial adviser appetite for your product and direct [ lending ] products broadly? And how do you think that the sort of $20 billion pace of wealth flows will evolve over the next couple of years?

So let's start. I think wealth is going to grow. I think we're at the beginning of a really long trend. Headlines obviously have impacts. But I think we're going to see, and I think we will benefit from a more of a flight to quality. We have positioned ourselves in the wealth market, particularly as it relates to credit as less levered, no PIK, 100% first lien large companies. That does not result in the highest dividend. We proudly say that. That's not the business we're building. If I wanted the highest dividend, I would be more growth, more PIK, more subordination, higher leverage. These are just choices. And to date, investors have not had -- and advisers have not had to figure out which firm is which. They're just all private markets firms. I think moments like this will help us define in the eyes of the advisers and the eyes of investors who we are as a firm. But I think -- and I want to -- I'll say this with the most respectful tone, I think we're looking at it on a really short-term basis. We are -- we and the other large firms are beneficiaries of a trend today, which is wealth. And the reason we're beneficiaries is people are buying wealth products like stocks and bonds of old. And only the large firms have the capacity to create the systems, the infrastructure, the support necessary to do this. I don't think that's the last stop though. At the end of the day, I think no one buys stocks and bonds in the public market anymore. They buy exposures. I think they're going to buy private market exposures. And the moment we switch from buying it like stocks and bonds to buying exposures, I think the growth in our industry is going to accelerate because each individual sale is an individual sale. The moment it becomes a 10% or 20% or 40% allocation, it's going to go through the roof. Now on the one hand, that is not going to -- that's going to reduce the power of the large firms that have invested in infrastructure. On the other hand, it's going to put power in the hands of firms who can originate. Everything in my opinion, will come back to your capacity to originate risk. The channels, and I said this to you walking in, I would bet that we will do more volume next year in 4 trades with traditional asset managers than we will in thousands of trades in the wealth channel. We're so fixated on wealth because it's just the thing that's in front of us as opposed to stepping back and saying, there are 6 markets. Each of those markets is in different stages of maturity. They're all going to go through their own change. There's fundamentally good demand. This is ultimately about product and origination. And I think brand is going to be important for a period of time, but I think brand as an investor is actually going to become more important.

You spoke a little bit about that on the last earnings call as well. So maybe we can drill down into the opportunity you're seeing with traditional managers. On the one end of the spectrum, I totally get it, right? Like this could enhance returns for a lot of the traditional products. There are limitations, most [ 40th punk ] can only own up to 15% of liquids, most will probably not go quite that high. How do you, I guess, envision the commercial model for something like this working? And how do you, I guess, expect that part of the market to develop?

So we -- if you look at every -- I'll say it slightly differently, and then I'll come at the market. Put yourself in our shoes. If you think of this -- if you think of our industry as limited by assets, we should want to put our assets -- first, we should be diversified. The second is we should want to put our assets where we realize the highest net fee. And the third is we should want to be where money is sticky. So we don't have to keep doing it, and we have good stability of flows. If I think of it in that basis, it kind of gives you the revenue model for traditionals. The serving of individual clients, whether they are institutional clients or wealth clients is actually quite expensive. To the extent we are relieved of that, should I be willing to share some amount of the top line fee with the traditional, of course, I should. I'm interested in running a net profit business off of assets that are stable. It will be interesting to see whether, in fact, those assets become stable. 15% in a mutual fund bucket, if most mutual funds got to 10%, do the math what that would imply for this industry. We, as an industry, cannot originate enough to serve all 6 channels. I believe we are heading for a world where there is more demand for quality private assets than there is supply of quality private assets. I think over time, that will generally give us some amount of pricing power so long as we originate good risk. And we will be very careful not to abuse that pricing power because we will want to do it with people who are partners over cycles and who are easy to serve. In the institutional market, I believe we will have fewer clients in 5 years than we have today. And those clients will be larger, they will be more partner like. In the retail market, I believe that we will be -- end up in a position where the big wealth firms probably don't sell individual products. They sell blended products of multiple exposures. I'm all for that world, although I'm a beneficiary of the world that exists today. In insurance companies, there is nothing, but demand because assets that historically insurance companies might have seen spread in CLO, spreads have completely and totally compressed, and there is no mean reversion. You look at our book, and we were very -- we benefited greatly from this. We had a $40 billion CLO book. That book has run down to $30 billion, and my guess is it will run down to $20 billion. Spread is just not attractive in this market. Insurance companies worldwide are desperate for assets that offer excess return per unit of risk. You cannot run an insurance company successfully and profitably if your only access is what exists in the public market or what is readily available like CLO in the private market. Traditional asset managers just getting started. And if 401(k) happens, which I believe it is going to in some form or fashion, I think we're going to find out very quickly that our bottleneck is origination.

Yes. Let's play this out a little further. So as the end market evolves the way you sort of envision it, and obviously, we've seen that already with individual investors, insurance companies, maybe traditional asset managers, what are your expectations in terms of private markets becoming more of a tradable asset? And what role do you see Apollo and perhaps some of your peers playing in that ecosystem?

Well, we have -- like in every market, we have people who resist change, and I believe change will be visited upon them, and then we have people who are embracing change. I have never seen a market that has become more liquid and more transparent that shrinks. I think growing the market is good for our business because it creates more demand for private assets and that gives more power to the originator. That's it. It's no more complicated than that. And if you're running a business where lack of transparency, lack of liquidity, stability of pricing in a fictional way benefits your business, you're running a short-term business. This is ultimately not going to survive light of day. And so you look at the decisions we've made -- well, I'll go back in history. We don't -- like we have this market, which is the closest analogy to what's happening in private markets called broadly syndicated loans. Broadly -- why broadly syndicated loans trade? They're not securities. The notion that a broadly syndicated loan could trade is a relatively new phenomenon. These were private loans to companies. No company was the same, no standardization, no anything. One bank decided 20 years ago that they wanted to build a market, they made a market. And then lo and behold, we now have derivatives, open-end mutual funds, and we think of these things as securities, even though they're not securities. The same thing is happening right now in private markets. It's starting with private investment grade. We -- little Apollo, I don't know, we're probably close to $7 billion of trades so far this year, and we're not even a trading firm. Like this is going to be 3x its size next year. And your firm is not going to like that we're earning widespread in this market. They're going to jump in and step in front of us because they're a better trader. And JPMorgan is not going to like that you are doing it, they're going to step in. We're going to see multiple market makers in private investment grade to start. Because what's interesting about private investment grade is most of the issuers are public companies. And you can put the Intel bonds -- public and Intel bonds private side by side. And you would not know the difference in trading volumes, in quotes, in spreads or anything else. And so I think markets are going to trade. I think loans -- like the difference between direct lending and broadly syndicated is what? It's only whether the holder has chosen to trade it. There's no reason that it can't trade. In fact, I think you've seen in the past 2 weeks some firms lighten up their positions. And lo and behold, they wanted liquidity, they got liquidity. Will trading come to private equity? Probably not so long as it is in fund format. But will equity trade? I think you're going to see evolutions of products. And so I think the thing that we have to keep our eyes on, structures that were developed 40 years ago, like drawdown funds, are not ideal for trading. But the structures themselves are not going to survive the test of time. They were structures put in place during an intense lack of trust because these markets were not markets, they were a black art. And when you don't trust someone, you hold the money until the last second and then you give it to them and then you take it back the next day. The inefficiency of this is unbelievable, but it's custom and changing customs is sometimes very hard. But I think you're going to see changes in how fund formation works, and that will make these products more tradable. Will they be as liquid as public markets? No, on the equity side. But on the credit side, I could see them rivaling public credit from a tradability point of view, which means poor liquidity because public credit has poor liquidity.

Right. Right. It's fascinating. All right. Let's pivot a little bit. Let's talk about the rest of your business, so private equity and hybrid. You guys have a really strong track record in private equity. You're going to be in the market raising your next vintage next year. Maybe talk to us a little bit about the LP appetite you hear in the market. Obviously, private equity as and asset class has been more challenged over the last couple of years. It's starting to get a little better. So curious your thoughts there. And then secondly, on hybrid, I believe back at the Investor Day, you talked about that being one of your fastest-growing businesses. How do you expect that business to evolve over the next few years?

So I'll start in reverse. Hybrid will be our fastest-growing business. And it just represents the best risk reward. There's just the ability to earn low double-digit rates of return with low vol, just doesn't exist anywhere else. And so it actually has gotten even more attractive relative to credit because credit often prices off of short rates, whereas things like hybrid price off the tenure, which have gone the other way. And so you have 2 phenomenas. One, the capital to companies is more attractive. It is lower cost. It is noncontrol. And that means it's in high demand. And the second is the capital formation is relatively difficult because it doesn't have a bucket. Both of those things together have resulted in hybrid being the best risk reward for the past decade. It is where most of our firm's principal capital is. It's where most of my family office principal capital is because that's just the best risk reward. And I think we're going to grow that market 3x its size. We were circa $100 billion, we'll be $300 billion in hybrid. Matt Nord, who runs this for us will be very busy. In terms of private equity, private equity, I've said, not everyone loves this, it's not a growth business. We don't see it as a growth business. It's a 40-year-old asset class. It's an amazing business, and we run that business for rate of return. If you took your eye off the ball for the last 20 years, and you plowed in because rates were low and paying high prices, of course, you were going to have a hangover, both GPs and LPs. If you did what we and a number of other firms did, which was treat this like a 20-year asset class where you have to earn really high rates of return, you have reasonable DPIs, you have reasonable rates of return. I don't think there's any mystery to this. Private equity is an amazing asset class. It's just not a growth business. I think you will see us raise $20 billion plus, and we will go back and do exactly what it is we do. And I think the growth you will see in our equity business will come in 2 places. One will be hybrid. And the second will be a reimagination of what private equity is as an industry. I won't explicate there. We're having a lot of fun with really stepping back and understanding what -- believing what private equity should be as an industry rather than what it is.

Great. Looking forward to seeing that.

That will be fun.

Okay. Let's let's spend a couple of minutes on Athene. You guys recently held a bit of a teach-in and really kind of outlining the growth prospects for the business for the next couple of years. So I wanted to double click on a couple of things you talked about. When it comes to originations with $85 million plus in volume targets in '26, embedded within that, and you talked about some of the new products, new structures, and really opportunities to evolve that marketplace, talk to us a little bit about what that looks like?

So we have this really interesting thing where people have lots of questions about Athene, and why you're in it, it's insurance, it's so complicated, it's capital intensive. And then we have like 100 firms who wish they were in it. And this is where I'd start. Given what we've said about origination and demand for assets, if you are building an insurance business to grow your asset management business, it's asked backwards. You should be able to sell your assets 5x over. And if you can't sell your assets 5x over, putting them in a regulated entity is not a good idea. There's a bit of risk reward. But if you think like we think that we are limited in our growth by their capacity to originate assets, the logical conclusion from that is that we want to earn more money on every asset that we originate. So getting a full fee is the beginning of the revenue stream. We want where it makes sense to earn some portion of the principal profit of every asset that we originate, that's a theme. It is a means for us to earn more money, and sometimes we own 100% of that risk. That's a theme proper. And sometimes we own 33% or 34% of that risk, that's ADIP or the sidecars that we run. We like all the business. No, we're never going to be 100% principal because of diversification in capital. But as much profit as we can retain given that we are asset limited, we do. Now the prerequisite to that is that you earn adequate rates of return, and adequate rates of return to us are mid-double-digit rates of return. So we've earned north of 15% rates of return for the last 17 years. It comes from having good asset origination, good liability origination, low-cost structure and low vol. I don't see many people able to do that today. I see people with a poor strategic plan, which is basically we need to grow our asset management franchise because FRE is more valuable, and therefore, we're going to give away our asset management fee to subsidize the cost of getting into the insurance business. It just doesn't make any sense. And so what people are doing is they're taking business offshore to Cayman, where there are fewer rules and fewer capital requirements. Because the business model is challenged, we've now seen 3 bankruptcies in Cayman. We will see more. I do not believe that Cayman will be a viable U.S. jurisdiction over 24 months. And so I come back to, owning more of your profit stream so long as you can own it at double-digit rates of return seems like an intelligent idea. There's plenty of demand for retirement product. And so we're kind of serving 2 markets at 1 time, which is; one, we originate assets to finance the global industrial renaissance, generally investment-grade and long term. Holding those assets unlevered by themselves would not be attractive to us. But we use that to support guaranteed income to retirees and holding the equity of Athene given that we have a perfect package of asset and liability matching gives us double-digit rates of return with low vol. It can be harder, it can be easy, Alex.

Yes. Fair enough. Well, lots more to talk about. But unfortunately, we're out of time. So Marc, thank you so much for being here. Really appreciate it.