Apollo’s Income Rebounds, Partly Thanks to Record Fee Earnings

In the wake of unprecedented economic challenges, adaptability and strategic maneuvering have become essential for businesses aiming not only to survive but to thrive. The financial landscape of 2023 has seen its fair share of turbulence, yet amidst this backdrop, Apollo, a prominent player in the financial sector, has demonstrated remarkable resilience. A significant contributor to this resurgence has been the record-breaking fee earnings that have fortified the company’s income stream.

In this article, we delve into the resurgence of Apollo’s income, shedding light on the strategic decisions and market dynamics that have played a pivotal role in this remarkable turnaround. From navigating market volatility to capitalizing on emerging opportunities, Apollo’s journey serves as a beacon of inspiration for businesses navigating today’s complex financial terrain.

Join us as we dissect the elements that have propelled Apollo back into a position of strength, spotlighting the critical role that record fee earnings have played in this narrative. Through this analysis, we aim to provide insights not only into Apollo’s success but also to offer valuable lessons for businesses seeking to forge their own path to financial resilience in a challenging economic landscape.

Surge in Fee Earnings Drives Apollo Global Management’s First-Quarter Profits

Apollo Global Management, the New York-based alternative-asset manager, demonstrated a remarkable first-quarter performance, largely attributed to its unprecedented fee earnings. Despite a substantial decline in gains from asset sales, the company reported a significant upswing in fee-related earnings.

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Record-Breaking Fee Earnings

In the initial three months of this year, Apollo’s fee-related earnings surged by an impressive 28%, amounting to a staggering $397 million compared to the same period last year. This growth was fueled by a noteworthy 14% increase in fund management fees, reaching $577 million. Additionally, revenue from transactions and advisory activities, referred to as capital-solutions fees, more than doubled, surging to $138 million.

During a call with analysts to discuss the firm’s results, Chief Executive Marc Rowan expressed confidence in their projected 25% year-over-year growth in fee-related earnings, stating, “We are well on our track to doing it.”

Apollo’s Income Rebounds, Partly Thanks to Record Fee Earnings
Apollo’s Income Rebounds, Partly Thanks to Record Fee Earnings

Remarkable Capital Accumulation

One of the key highlights of the quarter was the acquisition of $57 billion in new investment capital. This substantial influx played a pivotal role in elevating the firm’s total assets under management to an impressive $598 billion. This is a substantial increase from $548 billion at the end of December and $513 billion at the close of March 2022.

Offsetting Declines in Principal Investing Income

While Apollo experienced a notable 96% drop in principal investing income, which represents earnings from asset sales, it was largely offset by the surge in fee-related earnings. In the first quarter, earnings from asset sales amounted to just $8 million, a stark contrast to the $187 million recorded a year earlier. Market volatility was a significant factor contributing to this decline, making exits more challenging.

Impact of Higher Interest Rates

The firm’s retirement-services segment saw a 2% increase in spread-related earnings, rising from $674 million to $688 million, owing to higher interest rates. This figure represents gains from investments made by Apollo’s Athene insurance and annuity business.

Apollo has expressed its expectation that fee- and spread-related earnings will constitute at least 90% of its long-term profit, on average.

Impressive Turnaround in Net Income

Apollo’s first-quarter net income showcased a remarkable turnaround, standing at $1.01 billion, or $1.66 per share. This is in stark contrast to the net loss of $401 million, or 70 cents per share, reported in the same period of the previous year. The previous year’s loss was largely attributed to decreases in asset values due to rising interest rates, a trend that intensified in the second quarter of 2022.

The firm’s primary non-GAAP earnings metric, adjusted net income, experienced a 7.9% decrease, falling from $917 million to $845 million compared to the previous year.

Apollo’s Income Rebounds, Partly Thanks to Record Fee Earnings
Apollo’s Income Rebounds, Partly Thanks to Record Fee Earnings

Strategic Market Deployment

Apollo strategically deployed $33 billion during the first quarter, capitalizing on market uncertainties and reduced lending appetites of banks. Apollo Co-President Scott Kleinman emphasized, “With the dislocation we’ve seen in the banking sector over the past couple of months, we’ve been leaning into a wide range of investing opportunities across private-credit platforms.”

Messrs. Rowan and Kleinman indicated Apollo’s active pursuit of buyouts now that the era of low interest rates and escalating asset prices has concluded. The firm has committed approximately $6 billion from its latest buyout vehicle, Apollo Investment Fund X LP, since the previous autumn.

Future Fundraising Endeavors

By the end of March, the firm had amassed $16 billion for its 10th main fund, with expectations to conclude fundraising for the vehicle in the coming summer, targeting a total exceeding $20 billion, according to Mr. Kleinman.

Recent high-profile transactions include the $8.1 billion buyout earlier this year of chemical manufacturer Univar Solutions and the acquisition of aluminum products manufacturer Arconic in a $5.2 billion deal announced just last week.

A Active Player in the Buyout Arena

Mr. Rowan emphasized, “Those who have followed closely over the past few weeks will see just how active we’ve been in the buyout business.” He noted that the firm had refrained from making extensive purchases while asset prices were on the rise.

Apollo shares saw a favorable uptick of approximately 1% by late afternoon, trading at around $62.50 in New York.

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Conclusion

This comprehensive article highlights Apollo Global Management’s exceptional performance in the first quarter, showcasing a robust strategy focusing on fee-related earnings and strategic market deployment. Despite challenges in the asset sales arena, Apollo’s solid financials and active pursuit of buyouts position the firm as a formidable player in the financial landscape.

Source: https://www.wsj.com/articles/apollos-income-rebounds-partly-thanks-to-record-fee-earnings-a61228d