(Bloomberg) — Apollo Global Management Inc. Chief Executive Officer Marc Rowan took a “victory lap” on the firm’s record year, laying out goals to double its private credit origination business and put that asset class into retirement accounts.
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The firm posted record annual earnings, beating Wall Street estimates as higher interest rates powered growth at the credit-focused alternative asset manager. Originating private credit assets to sell to its Athene annuities business, other insurance companies and individual investors is crucial for the firm’s growth, Rowan said.
Apollo aims to raise its annual origination of private credit to $200 billion-$250 billion in five years, up from around $100 billion, he said on an earnings call with investors Thursday.
“We can only grow as fast as we scale our capacity to create investments that in fact offer our clients excess return per unit of risk,” Rowan said.
Apollo owns 16 platforms that create private credit investments and many have room to double their business — including MidCap Financial and Atlas SP, he said.
The firm took in $8 billion this year in its wealth business, including $1.5 billion to its equity-like Apollo Aligned Alternatives fund that invests across Apollo strategies.
Risk Mentality
The firm is starting to see openings to put its wealth products into 401(k) accounts, Rowan indicated.
“The 401(k) market is not limited by legal restriction. It’s limited by a risk mentality,” he said. “You’re watching the first baby steps as a fiduciary managers in 401(k) begin to mix in private into their heretofore public solutions, simply to get better outcomes and better diversification.”
Apollo shares rose 1.86% to $107.87 at 10:33 a.m. in New York, paring earlier gains. The firm’s stock rose about 46% over the past year.
Apollo generated more GAAP net income in 2023 than it did over the previous decade as investors poured money into private credit amid higher interest rates and volatile public markets, including slower leveraged loan and high yield markets. More than 80% of the firm’s assets under management are in credit.
Adjusted net income in the fourth quarter surged 31% to $1.18 billion, or $1.91 a share, the New York-based company said Thursday in a statement. That topped the $1.72 average estimate of analysts surveyed by Bloomberg.
“Amid a volatile market backdrop in 2023, Apollo was firing on all cylinders,” Rowan said in the statement.
Fee-related earnings rose 16% to $457 million as Apollo’s 10th flagship private equity fund began to invest, mitigating an 18% decline in fees earned by its capital solutions unit.
Spread-related earnings, which reflect profitability at the firm’s Athene insurance business, climbed 7.2% to $748 million. Athene’s net investment spread, or income from investing, rose 6% to $959 million, with gains in fixed income offsetting a slide in equity investments in the Athene portfolio.
Investors should expect 15% to 20% fee-related earnings growth, and “low double-digit growth” this year in spread-related earnings, Chief Financial Officer Martin Kelly said on the call.
PE Exits
The firm took a more muted tone than some of its peers on the prospect for private equity exits. Principal investing income from selling private equity assets will fall below the multiyear average target of $1 per share in 2024, Kelly said.
Apollo reported $83 million in principal investing income from selling assets in 2023, a 71% decline from the previous year.
The firm took in $32 billion of gross inflows during the fourth quarter, including $22 billion at Athene. Apollo expects to raise $120 billion in 2024, with $50 billion coming into asset management and $70 billion into Athene, Co-President Scott Kleinman said. The firm is targeting $1 trillion in assets under management by 2026.
Apollo originated $30 billion of private credit assets during the quarter, with about half coming from its origination platforms such as Atlas SP.
Other fourth-quarter highlights:
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Assets under management grew 19% to $651 billion
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Principal investing income from selling private equity assets gained 89% to $51 million
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The direct origination portfolio gained 5.4% while the flagship private fund strategy rose 2.5%
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European principal finance fell 3.8%
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Dry powder totaled $58 billion at year-end
(Updates with details from investor call throughout)
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