Apollo Global Management, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Apollo combines alternative asset management with Athene’s retirement services business. Athene has been consolidated since January 1, 2022, so the prior-year comparison includes Athene but reflects materially different market movements and business activity.
Financial and operating results
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Total revenue | $5.301 billion | $862 million | Increase largely reflects a swing in Athene investment-related gains and losses. |
| Net income attributable to Apollo common stockholders | $1.010 billion | Loss of $401 million | Basic and diluted EPS were $1.67 and $1.66, versus a $0.70 loss per share. |
| Segment Income | $1.093 billion | $1.171 billion | Down 7%; a non-GAAP management measure. |
| Adjusted Net Income | $845 million | $917 million | Down 8%; a non-GAAP measure. |
| Fee Related Earnings (FRE) | $397 million | $310 million | Up 28%, driven by management and capital-solutions fees. |
| Spread Related Earnings (SRE) | $688 million | $674 million | Up 2%; higher investment earnings were largely offset by higher funding costs. |
| Principal Investing Income (PII) | $8 million | $187 million | Lower realized investment income more than offset higher realized performance fees. |
Athene’s investment-related gains were $1.065 billion, compared with losses of $4.230 billion in Q1 2022. Net investment income rose 51% to $2.612 billion; premiums fell to $96 million from $2.110 billion, mainly because prior-year pension group annuity premiums were substantially higher. The quarter’s results are therefore sensitive to fair-value movements and are not well represented by a simple consolidated margin comparison.
- Cash flow: Operating cash flow was $1.071 billion, versus cash used of $3.993 billion. Investing activities used $5.640 billion and financing activities provided $11.523 billion. Financing inflows included policy and contract deposits and increased collateral/repo funding.
- Balance sheet and debt: Total assets were $270.324 billion and total liabilities $252.590 billion at March 31. Reported debt was $6.464 billion ($2.814 billion in asset management and $3.650 billion in retirement services), broadly unchanged from year-end.
- Liquidity: Apollo reported $15.1 billion of unrestricted cash and cash equivalents, $0.4 billion of U.S. Treasury securities, and $4.8 billion of available borrowing capacity. The $18.085 billion ending total of cash, restricted cash and cash held by consolidated VIEs includes amounts not freely available for general corporate use. Management said liquidity should cover anticipated needs for at least 12 months.
- Asset management scale: AUM was $597.7 billion, up 9.1% from year-end; fee-generating AUM was $445.2 billion, up 8.0%. Dry powder was $52 billion. Growth included Atlas, retirement-services client assets and fundraising.
- Athene spread and portfolio: Net investment spread was 1.83%, down 4 basis points; net investment earned rate increased to 4.25% from 3.65%, while cost of funds rose to 2.45% from 1.81%. Athene’s net invested assets were $206.7 billion. AFS securities had $17.084 billion of gross unrealized losses, which management primarily attributed to interest-rate movements and said it intended to hold through recovery.
Material changes and notable items
- FRE advanced with higher fee-generating AUM and capital-solutions activity. Management fees in GAAP results increased 23% to $414 million, and advisory and transaction fees, net, rose to $155 million from $66 million.
- Athene’s market-sensitive earnings rebounded from the prior-year loss environment. Favorable current-period changes in reinsurance assets, mortgage loans, derivatives and securities were partly offset by higher annuity-related benefit costs and market-risk-benefit remeasurement losses.
- Athene’s repurchase-agreement payables increased to $7.8 billion from $4.7 billion at year-end. It had no outstanding balances on its disclosed AHL credit and liquidity facilities at March 31, after borrowing and repaying $1.0 billion on the liquidity facility during the quarter.
- Apollo adopted long-duration targeted improvements (LDTI) accounting on January 1, 2023, with retrospective transition to January 1, 2022. The new rules affect insurance liability measurement and income/OCI presentation; management updated related processes and controls.
- The company repurchased $458 million of common stock in the quarter and paid a $0.40-per-share dividend. A $0.43-per-share dividend was declared May 9, 2023, payable May 31.
Outlook, risks and contingencies
No quantitative company earnings guidance was provided in the supplied filing text. Management described the fundraising environment as generally supportive, but emphasized uncertainty from inflation, interest rates, financial-market volatility and banking-sector stress. It specifically noted commercial real estate financing and valuation concerns, particularly for offices, and the possibility that volatility could worsen if further bank failures occur. Interest rates affect Athene’s asset values, investment income, product demand and policyholder crediting costs; Apollo’s fee and performance income also depends on fund performance and realizations.
- Athene had $19.3 billion of investment commitments, primarily to funds, and Apollo had $0.6 billion of unfunded commitments relating to managed funds. Most are expected to be invested over five years, but can be called sooner under their terms.
- In the Atlas/Credit Suisse securitized-products transaction, Atlas’s $3.3 billion deferred purchase obligation is supported by assurance letters from Apollo subsidiaries. The filing says the guarantee liability’s fair value was not material; the obligation remains a contingent exposure investors should understand.
- Performance allocations are subject to reversal if fund values decline. The filing reports approximately $4.9 billion of cumulative recognized performance revenues could be reversed if existing investments became worthless; management considers that scenario remote. Fund VII distributions remain subject to escrow requirements.
- Legal matters include pending Harbinger and MPM-related litigation and an SEC information request concerning record-retention compliance for business communications. The filing says the potential loss for certain matters cannot be reasonably estimated. The Eleventh Circuit affirmed a favorable judgment in the CEVA matter.
- Athene’s insurer capital, distributions and liquidity are subject to regulatory and contractual constraints. Market-risk sensitivities include an estimated $570 million pre-tax income decrease from an immediate 25-basis-point rate increase and a $408 million decrease from a 10% public-equity decline, under the filing’s stated assumptions.
Important facts for investors to verify
- How much of the sharp GAAP earnings rebound reflects recurring operating performance versus fair-value movements, and how do Segment Income, FRE, SRE and ANI reconcile to GAAP results?
- Whether Athene’s rising funding costs, repo balances and policyholder flows affect future spreads, liquidity or access to collateral and funding.
- The quality, valuation assumptions and concentration of Athene’s investments, including mortgage loans, related-party exposures, AFS unrealized losses and Level 3 assets.
- The final economics and risk allocation of the Atlas transaction, including the $3.3 billion deferred obligation and subsidiary assurance letters.
- Whether AUM growth converts into fee-generating assets, realized performance fees and sustainable cash flow, given redemption, valuation and clawback risks.
- Potential developments in litigation, the SEC record-retention inquiry, tax examinations and the effect of LDTI accounting on reported insurance results.