Apollo Global Management, Inc. (APO) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call indicates robust financial performance with record AUM and strong inflows, alongside optimistic guidance in asset management and retirement services. The Q&A section highlights management's confidence in sustaining growth, despite some ambiguity in revising targets. The strategic plan and recent acquisition further bolster positive sentiment. Overall, the company's performance and outlook suggest a strong positive impact on the stock price.

Key Financial Performance

Adjusted Net Income $1.4 billion or $2.17 per share, up 17% year-over-year. Reasons for change: Record combined fee and spread-related earnings.

Fee-Related Earnings (FRE) $652 million, up 23% year-over-year. Reasons for change: Driven by management fee growth of 22% year-over-year and strong business fundamentals.

Management Fees 22% year-over-year growth. Reasons for change: Third-party asset management inflows and record gross capital deployment, particularly across the credit platform.

Capital Solutions (ACS) Fees $212 million, second straight quarter in excess of $200 million. Reasons for change: Breadth of origination capabilities and strong performance across hybrid value, opportunistic equity, climate transition, and real estate businesses.

Spread-Related Earnings (SRE) ex notables $846 million, with an estimated Q4 SRE of $880 million. Reasons for change: Strong origination and investment-grade spread products.

Origination Volume $75 billion for the quarter, second strongest quarter following a record Q2. Reasons for change: Strong platforms and robust demand for private credit.

Assets Under Management (AUM) $908 billion, up 24% year-over-year. Reasons for change: Robust inflows of $82 billion for the quarter, including $59 billion from asset management and $23 billion from retirement services.

Fee-Generating Assets Under Management $685 billion, up 24% year-over-year. Reasons for change: Strong inflows and deployment across asset management and retirement services.

Athene's Net Invested Assets $286 billion, up 18% year-over-year. Reasons for change: $23 billion of gross inflows in Q3 and strong new business growth.

Capital Formation $82 billion in inflows for the quarter, including $49 billion organic inflows and $34 billion from the Bridge acquisition. Reasons for change: Strong institutional and global wealth channels.

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Operating Highlights

New Homebuilder Finance Strategy: Launched Olympus Housing Capital, focusing on homebuilder finance, leveraging structural undersupply of single-family homes and demographic trends.

Digital Infrastructure Expansion: Stream Data Centers was introduced to strengthen presence in digital infrastructure.

European CRE Lending Platform: Launched TenFifty, targeting underserved small- and medium-sized CRE markets in Europe.

Sports and Live Events Ecosystem: Apollo Sports Capital was launched to focus on credit and hybrid opportunities in the sports and live events ecosystem.

Global Private Credit Demand: Broad secular forces like the global industrial renaissance and retiree demographics are driving increased demand for private credit, particularly investment grade.

Global Wealth Channel Growth: Raised $5 billion in the wealth channel, marking the second-best quarter on record, with year-to-date total exceeding $14 billion, up 60% year-over-year.

European Energy Transition Investments: Invested in large-scale European energy transition projects, including a $6.5 billion stake in Hornsea 3 offshore wind project.

Origination Volume: Achieved $75 billion in origination for the quarter, second only to last quarter's record, with a 40% year-over-year increase in 12-month origination volume.

Fee-Related Earnings (FRE) Growth: FRE reached $652 million, up 23% year-over-year, with management fees growing 22% year-over-year.

Retirement Services Inflows: Athene achieved $23 billion in organic inflows for the quarter, with year-to-date inflows at $69 billion, pacing toward a record year.

Expansion into New Markets: Identified six potential markets for private assets, including insurance, traditional asset managers, and 401(k) plans, expanding beyond institutional clients.

Focus on Innovation: Plans to emphasize innovation in market making, leveraged share classes, and reinvention of the CLO market in upcoming strategies.

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Risk or Challenges

Capacity to find good investments: The company is concerned about its ability to find good investments, which could limit growth. This is seen as a more significant challenge than raising capital.

Cultural risks: The company is focused on maintaining its status as a preferred employer, which is critical for attracting and retaining top talent. Losing this status could impact operations and performance.

Geopolitical risks: The company acknowledges enhanced sources of geopolitical risk, which could impact investment strategies and returns.

Tight market spreads: The company notes that spreads for assets appropriate for insurance companies are tight, which could challenge profitability without proprietary origination capabilities.

Prepayment headwinds: The company anticipates asset prepayment headwinds peaking through Q1 of 2026, which could impact spread-related earnings.

Roll-off of profitable post-COVID business: The roll-off of profitable post-COVID business is expected to peak in 2025, potentially impacting earnings.

Floating rate sensitivity: The company has reduced its sensitivity to floating rates, but this remains a factor that could influence financial performance.

Market conditions for private equity: The company is cautious about market conditions, noting that things are not cheap, rates are not expected to plummet, and geopolitical risks are present. This has led to a strategy of taking risk down.

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Guidance & Outlook

SRE (Spread-Related Earnings) Projections: SRE in Q4 is estimated to be approximately $880 million, driving an estimated full-year SRE of $3.475 billion, representing approximately 8% year-over-year growth.

FRE (Fee-Related Earnings) Growth: FRE growth is expected to exceed 20% in 2026, driven by management fees, capital solutions fees, and fee-related performance fees.

Asset Management Outlook: The asset management business is expected to see continued innovation, including market-making, leveraged share classes, and reinvention of the CLO market. FRE growth of 20%+ is anticipated in 2026.

Retirement Services Growth: Athene's SRE growth is projected at 10% year-over-year for 2026, with an average growth rate of 10% over the next five years. The annuity market and guaranteed income products are expected to drive growth.

Origination Volume: Origination volume reached $75 billion in Q3, with a 40% year-over-year increase over the last 12 months. The company expects continued scaling of origination capabilities.

Capital Formation and Inflows: Capital inflows reached $82 billion in Q3, including $49 billion of organic inflows. The company anticipates strong demand for credit-oriented strategies and expects continued growth in global wealth and institutional channels.

New Initiatives and Markets: The company is expanding into new markets, including sports capital, digital infrastructure, and European CRE lending. These initiatives are expected to contribute to future growth.

Long-Term Growth Targets: The company maintains long-term growth targets of 20% annual FRE growth and 10% annual SRE growth through 2029. FRE is expected to equal SRE by 2028 and exceed it thereafter.

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Shareholder Return Plan

Share Repurchase: We executed over $350 million in share repurchases during the quarter, the majority being opportunistic. The sequential growth in our share count reflects this activity as well as the shares issued in connection with closing the Bridge transaction.

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Key Q&A

Q:Has the company's thinking changed regarding the annual origination target of $275 billion given the strong year-to-date origination activity?

A:The management acknowledged the strong start and momentum but stated it would be premature to revise the 5-year estimates just 9 to 12 months into the plan. They emphasized confidence in achieving over 20% FRE growth in the coming years.

Q:What is the outlook for Apollo's wealth market and the $5 billion trajectory in the third quarter?

A:Management highlighted the expansion of their product suite over the last 24-36 months and emphasized partnerships with traditional asset managers. They believe private assets will increasingly be added to in-place exposures, driving significant growth in the wealth market.

Q:What are the management's thoughts on Colm Kelleher's warning about private letter ratings arbitrage in U.S. insurance being a systemic risk?

A:Management disagreed with Colm Kelleher's view, stating that Athene does not use Egan-Jones and has a strong rating profile. They emphasized that systemic risks are more about late-cycle behavior and bad actors rather than private letter ratings.

Q:How does the company view the wealth management opportunity amid concerns about rotation risk as rates come down?

A:Management believes the rotation into private credit is a shift out of equity, driven by investors seeking risk reduction. They emphasized the secular trend of demand for high-quality, compounding retirement income, which outweighs tactical market changes.

Q:What is the potential share of alternatives in traditional asset management and 401(k) markets?

A:Management estimated a potential 10% share in traditional asset management, with significant opportunities in private market exposure through partnerships. They emphasized the need for investments in infrastructure, transparency, and disclosure to support this growth.

Q:How does the company plan to address the trade-off between higher volumes and higher spreads in the current credit environment?

A:Management emphasized the importance of earning excess return per unit of risk and stated they would not grow the business without adequate spread. They highlighted their focus on origination and scaling it to create excess returns.

Q:What is the company's progress and outlook for partnerships with traditional asset managers?

A:Management discussed ongoing partnerships like those with State Street and Lord Abbett, emphasizing the evolution of open architecture solutions and the importance of brand and scale in these partnerships.

Q:What is the company's view on the 401(k) market and decumulation strategies?

A:Management sees guaranteed lifetime income as a key opportunity in decumulation strategies and is focused on educating the market. They noted progress in 401(k) managed account platforms but acknowledged it is still in the early stages.

Q:What is the company's confidence in achieving the 11% return target for Athene's alternative portfolio?

A:Management expressed confidence, citing strong returns in AAA and other insurance assets like Venerable. They expect improvements in Athora's performance with the deployment of excess capital into PIC.

Q:Review of Unclear Management Responses

A:Management avoided providing a direct answer to whether the annual origination target of $275 billion would be revised, stating it was premature to make changes to the 5-year estimates despite strong momentum.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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