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Deferred Revenue (Details)
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401(k) Savings Plan (Details)
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Athene Holding (Details)
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Entities Which are Not Consolidated (Details)
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Valuation of Financial Assets and Liabilities by
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Changes in Fair Value in Financial Assets
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Changes in Fair Value in Financial Liabilities
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Quantitative Inputs and Assumptions used for
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(Exact name
of Registrant as specified in its charter)
iDelaware
i20-8880053
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i9 West 57th Street,i42nd Floor
iNew
York,iNew Yorki10019
(Address of principal executive offices) (Zip Code)
(i212)
i515-3200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol(s)
Name of each exchange on which registered
i6.375% Series A Preferred Stock
iAAM.PR A
iNew
York Stock Exchange
i6.375% Series B Preferred Stock
iAAM.PR B
iNew
York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
This quarterly report may contain forward-looking statements that are within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, but are not limited to, discussions related to Apollo’s expectations regarding the performance of its business, its liquidity and capital resources and the other non-historical statements in the discussion and analysis. These forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. When used in this quarterly report, the words “believe,”“anticipate,”“estimate,”“expect,”“intend,”“target” and similar expressions
are intended to identify forward-looking statements. Although management believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. These statements are subject to certain risks, uncertainties and assumptions, including risks relating to the impact of COVID-19, the impact of energy market dislocation, market conditions, and interest rate fluctuations, generally, our ability to manage our growth, our ability to operate in highly competitive environments, the performance of the funds we manage, our ability to raise new funds, the variability of our revenues, earnings and cash flow, our dependence on certain key personnel, the accuracy of management’s assumptions and estimates, our use of leverage to finance our businesses and investments by the funds we manage, changes in our regulatory environment and tax status, litigation risks and our ability to recognize
the benefits expected to be derived from the merger with Athene Holding Ltd. (“Athene”), among others. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on February 25, 2022 (the “2021 Annual Report”), as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other
filings with the SEC. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.
Terms Used in This Report
On January 1, 2022, Apollo Global Management, Inc. completed the previously announced merger transactions with Athene (the “Mergers”). Upon the closing of the Mergers, Apollo Global Management, Inc. was renamed Apollo Asset Management, Inc. (“AAM”) and became a subsidiary of Tango Holdings, Inc., and Tango Holdings, Inc. was renamed Apollo Global Management, Inc. (“AGM ”).
In this quarterly report, references to “Apollo,”“we,”“us,”“our,” and the “Company” refer collectively
to AAM and its subsidiaries. References to “Class A shares” refer to the Class A common stock, $0.00001 par value per share, of AAM prior to the Mergers; “Class B share” refers to the Class B common stock, $0.00001 par value per share, of AAM prior to the Mergers; “Class C share” refers to the Class C common stock, $0.00001 par value per share, of AAM prior to the Mergers; “Series A Preferred shares” refers to the 6.375% Series A preferred stock of AAM; “Series B Preferred shares” refers to the 6.375% Series B preferred stock of AAM; and “Preferred shares” refers to the Series A Preferred shares and the Series B Preferred shares, collectively. In addition, references to “common stock” of the Company refer to the authorized shares of common stock,
par value $0.00001 per share, of AAM following the Mergers.
The use of any defined term in this report to mean more than one entity, person, security or other item collectively is solely for convenience of reference and in no way implies that such entities, persons, securities or other items are one indistinguishable group. For example, notwithstanding the use of the defined terms "Apollo,""we", “us”, "our" and the “Company” in this report to refer to AAM and its subsidiaries, each subsidiary of AAM is a standalone legal entity that is separate and distinct from AAM and any of its other subsidiaries. Any AAM entity referenced herein is responsible for its own financial, contractual and legal obligations.
Term
or Acronym
Definition
Accord+
Apollo Accord+ Fund, L.P.
Accord IV
Apollo Accord Fund IV, L.P.
Accord V
Apollo Accord Fund V, L.P.
AIOF I
Apollo Infrastructure Opportunities Fund, L.P.
AIOF II
Apollo Infrastructure Opportunities Fund II, L.P.
AMH
Apollo
Management Holdings, L.P., a Delaware limited partnership, that is an indirect subsidiary of AAM.
ANRP III
Apollo Natural Resources Partners III, L.P., together with its parallel funds and alternative investment vehicles
On
December 31, 2021, holders of units of the Apollo Operating Group (“AOG Units”) (other than Athene and the Company) sold and transferred a portion of such AOG Units to APO Corp., a wholly-owned consolidated subsidiary of the Company, in exchange for an amount equal to $3.66 multiplied by the total number of AOG Units held by such holders immediately prior to such transaction.
Apollo funds, our funds and references to the funds we manage
The funds (including the parallel funds and alternative investment vehicles of such funds), partnerships, accounts, including strategic investment accounts or “SIAs,” alternative
asset companies and other entities for which subsidiaries of the Apollo Operating Group provide investment management or advisory services
Apollo Operating Group
(i) The entities through which we currently operate our businesses and (ii) one or more entities formed for the purpose of, among other activities, holding certain of our gains or losses on our principal investments in the funds, which we refer to as our “principal investments”
APSG I
Apollo Strategic Growth Capital
APSG II
Apollo Strategic Growth
Capital II
Asia RE Fund I
Apollo Asia Real Estate Fund I, L.P., including co-investment vehicles
Asia RE Fund II
Apollo Asia Real Estate Fund II, L.P., including co-investment vehicles
Assets Under Management, or AUM
The assets of the funds, partnerships and accounts to which we provide investment management, advisory, or certain other investment-related services, including, without limitation, capital that such funds, partnerships and accounts have the right to call from investors pursuant to capital commitments. Our AUM equals the sum of:
(i) the net asset value, or
“NAV,” plus used or available leverage and/or capital commitments, or gross assets plus capital commitments, of the yield and certain hybrid funds, partnerships and accounts for which we provide investment management or advisory services, other than certain collateralized loan obligations (“CLOs”), collateralized debt obligations (“CDOs”), and certain perpetual capital vehicles, which have a fee-generating basis other than the mark-to-market value of the underlying assets; for certain perpetual capital vehicles in yield, gross asset value plus available financing capacity;
(ii) the fair value of the investments of the equity and certain hybrid funds, partnerships and accounts we manage or advise, plus the capital that such funds, partnerships and accounts are entitled to call from investors pursuant to capital commitments, plus portfolio level financings;
(iii)
the gross asset value associated with the reinsurance investments of the portfolio company assets we manage or advise; and
(iv) the fair value of any other assets that we manage or advise for the funds, partnerships and accounts to which we provide investment management, advisory, or certain other investment-related services, plus unused credit facilities, including capital commitments to such funds, partnerships and accounts for investments that may require pre-qualification or other conditions before investment plus any other capital commitments to such funds, partnerships and accounts available for investment that are not otherwise included in the clauses above.
Our AUM measure includes Assets Under Management for which we charge either nominal or zero fees. Our AUM measure also includes assets for which we do not have investment discretion, including certain assets for which
we earn only investment-related service fees, rather than management or advisory fees. Our definition of AUM is not based on any definition of Assets Under Management contained in our governing documents or in any management agreements of the funds we manage. We consider multiple factors for determining what should be included in our definition of AUM. Such factors include but are not limited to (1) our ability to influence the investment decisions for existing and available assets; (2) our ability to generate income from the underlying assets in the funds we manage; and (3) the AUM measures that we use internally or believe are used by other investment managers. Given the differences in the investment strategies and structures among other alternative investment managers, our calculation of AUM may differ from the calculations employed by other investment managers and, as a result, this measure may not be directly comparable to similar measures presented by other investment
managers. Our calculation also differs from the manner in which our affiliates registered with the SEC report “Regulatory Assets Under Management” on Form ADV and Form PF in various ways.
We use AUM, Gross capital deployed and Dry powder as performance measurements of our investment activities, as well as to monitor fund size in relation to professional resource and infrastructure needs.
“Athene
Holding” or “AHL” refers to Athene Holding Ltd. (together with its subsidiaries, “Athene”), a leading retirement services company that issues, reinsures and acquires retirement savings products designed for the increasing number of individuals and institutions seeking to fund retirement needs, and to which Apollo, through its consolidated subsidiary Apollo Insurance Solutions Group LP (formerly known as Athene Asset Management LLC) (“ISG”), provides asset management and advisory services. Athene Holding is a subsidiary of our parent company, Apollo Global Management, Inc.
Athora
“Athora Holding” refers to Athora Holding, Ltd. (“Athora Holding” and together with its subsidiaries,
“Athora”), a strategic platform that acquires or reinsures blocks of insurance business in the German and broader European life insurance market (collectively, the “Athora Accounts”). The Company, through ISGI, provides investment advisory services to Athora. Athora Non-Sub-Advised Assets includes the Athora assets which are managed by Apollo but not sub-advised by Apollo nor invested in Apollo funds or investment vehicles. Athora Sub-Advised includes assets which the Company explicitly sub-advises as well as those assets in the Athora Accounts which are invested directly in funds and investment vehicles Apollo manages.
AUM with Future Management Fee Potential
The
committed uninvested capital portion of total AUM not currently earning management fees. The amount depends on the specific terms and conditions of each fund.
Contributing Partners
Those of our current and former partners and their related parties (other than Messrs. Leon Black, Joshua Harris and Marc Rowan, our co-founders) who indirectly beneficially owned (through Holdings) Apollo Operating Group units.
Dry Powder
The amount of capital available for investment or reinvestment subject to the provisions of the applicable limited partnership agreements or other governing agreements of the funds, partnerships and accounts we manage. Dry powder excludes uncalled commitments which can only be called for fund fees and expenses
and commitments from Perpetual Capital Vehicles.
EPF I
Apollo European Principal Finance Fund I
EPF II
Apollo European Principal Finance Fund II
EPF III
Apollo European Principal Finance Fund III
EPF IV
Apollo European Principal Finance Fund IV
Equity Plan
Refers collectively to AGM’s 2019 Omnibus Equity Incentive Plan and AGM’s 2019 Omnibus Equity Incentive Plan for Estate Planning Vehicles.
FCI
IV
Financial Credit Investment Fund IV
Fee-Generating AUM
Fee-Generating AUM consists of assets of the funds, partnerships and accounts to which we provide investment management, advisory, or certain other investment-related services and on which we earn management fees, monitoring fees or other investment-related fees pursuant to management or other fee agreements on a basis that varies among the Apollo funds, partnerships and accounts. Management fees are normally based on “net asset value,”“gross assets,”“adjusted par asset value,”“adjusted cost of all unrealized portfolio investments,”“capital commitments,”“adjusted assets,”“stockholders’ equity,”“invested capital” or “capital contributions,” each as defined in the applicable management
agreement. Monitoring fees, also referred to as advisory fees, with respect to the structured portfolio company investments of the funds, partnerships and accounts we manage or advise, are generally based on the total value of such structured portfolio company investments, which normally includes leverage, less any portion of such total value that is already considered in Fee-Generating AUM
Former Managing Partners
Messrs. Leon Black, Joshua Harris and Marc Rowan collectively and, when used in reference to holdings of interests in Apollo or Holdings, includes certain related parties of such individuals
Gross capital deployment
The gross capital that has been invested in investments
by the funds and accounts we manage during the relevant period, but excludes certain investment activities primarily related to hedging and cash management functions at the firm. Gross capital deployment is not reduced or netted down by sales or refinancings, and takes into account leverage used by the funds and accounts we manage in gaining exposure to the various investments that they have made.
Gross
IRR of a traditional private equity or hybrid value fund
The cumulative investment-related cash flows (i) for a given investment for the fund or funds which made such investment, and (ii) for a given fund, in the relevant fund itself (and not any one investor in the fund), in each case, on the basis of the actual timing of investment inflows and outflows (for unrealized investments assuming disposition on June 30, 2022 or other date specified) aggregated on a gross basis quarterly, and the return is annualized and compounded before management fees, performance fees and certain other expenses (including interest incurred by the fund itself) and measures the returns on the fund’s investments as a whole without regard to whether all of the returns would, if distributed, be payable to the fund’s investors. In addition, gross IRRs at the fund level will differ from those
at the individual investor level as a result of, among other factors, timing of investor-level inflows and outflows. Gross IRR does not represent the return to any fund investor.
Gross Return or Gross ROE of a total return yield fund or the hybrid credit hedge fund
The monthly or quarterly time-weighted return that is equal to the percentage change in the value of a fund’s portfolio, adjusted for all contributions and withdrawals (cash flows) before the effects of management fees, incentive fees allocated to the general partner, or other fees and expenses. Returns for these categories are calculated for all funds and accounts in the respective strategies. Returns over multiple periods are calculated by geometrically linking each period’s return over time. Gross return and gross ROE do not represent the return to any fund investor.
HoldCo
Apollo
Global Management, Inc. (f/k/a Tango Holdings, Inc.)
Holdings
AP Professional Holdings, L.P., a Cayman Islands exempted limited partnership through which our Former Managing Partners and Contributing Partners indirectly beneficially owned their interests in the Apollo Operating Group units.
HVF I
Apollo Hybrid Value Fund, L.P., together with its parallel funds and alternative investment vehicles
HVF II
Apollo Hybrid Value Fund II, L.P., together with its parallel funds and alternative investment vehicles
Inflows
(i)
At the individual strategy level, subscriptions, commitments, and other increases in available capital, such as acquisitions or leverage, net of inter-strategy transfers, and (ii) on an aggregate basis, the sum of inflows across the yield, hybrid and equity investing strategies.
Net IRR of a traditional private equity or the hybrid value funds
The gross IRR applicable to the fund, including returns for related parties which may not pay fees or performance fees, net of management fees, certain expenses (including interest incurred or earned by the fund itself) and realized performance fees all offset to the extent of interest income, and measures returns at the fund level on amounts that, if distributed, would be paid to investors of the fund. The timing of cash flows applicable to investments, management fees and certain expenses, may be adjusted for the
usage of a fund’s subscription facility. To the extent that a fund exceeds all requirements detailed within the applicable fund agreement, the estimated unrealized value is adjusted such that a percentage of up to 20.0% of the unrealized gain is allocated to the general partner of such fund, thereby reducing the balance attributable to fund investors. In addition, net IRR at the fund level will differ from that at the individual investor level as a result of, among other factors, timing of investor-level inflows and outflows. Net IRR does not represent the return to any fund investor.
Net Return or Net ROE of a total return yield fund or the hybrid credit hedge fund
The gross return after management fees, performance fees allocated to the general partner, or other fees and expenses. Returns over multiple periods are calculated by geometrically linking
each period’s return over time. Net return and net ROE do not represent the return to any fund investor.
"Other operating expenses" within the Principal Investing segment
Expenses incurred in the normal course of business and includes allocations of non-compensation expenses related to managing the business.
Performance allocations, Performance fees, Performance revenues, Incentive fees and Incentive income
The interests granted to Apollo by a fund managed by Apollo that entitle Apollo to receive allocations, distributions or fees which are based on the performance of such fund or its underlying investments
AUM that may eventually produce performance fees. All funds for which we are entitled to receive a performance fee allocation or incentive fee are included in Performance Fee-Eligible AUM, which consists of the following:
(i) “Performance Fee-Generating AUM”, which refers to invested capital of the funds, partnerships and accounts we manage, advise, or to which we provide certain other investment-related services, that is currently above its hurdle rate or preferred return, and profit of such funds, partnerships and accounts is being allocated to, or earned by, the general partner in accordance
with the applicable limited partnership agreements or other governing agreements;
(ii) “AUM Not Currently Generating Performance Fees”, which refers to invested capital of the funds, partnerships and accounts we manage, advise, or to which we provide certain other investment-related services, that is currently below its hurdle rate or preferred return; and
(iii) “Uninvested Performance Fee-Eligible AUM”, which refers to capital of the funds, partnerships and accounts we manage, advise, or to which we provide certain other investment-related services, that is available for investment or reinvestment subject to the provisions of applicable limited partnership agreements or other governing agreements, which capital is not currently part of the NAV or fair value of investments that may eventually produce performance fees allocable to, or earned by, the general partner.
Perpetual
Capital
Assets under management of indefinite duration, that may only be withdrawn under certain conditions or subject to certain limitations, including but not limited to satisfying required hold periods or percentage limits on the amounts that may be redeemed over a particular period. The investment management, advisory or other service agreements with our Perpetual Capital vehicles may be terminated under certain circumstances.
Principal investing compensation
Realized performance compensation, distributions related to investment income and dividends, and includes allocations of certain compensation expenses related to managing the business.
Private equity investments
(i) Direct
or indirect investments in existing and future private equity funds managed or sponsored by Apollo, (ii) direct or indirect co-investments with existing and future private equity funds managed or sponsored by Apollo, (iii) direct or indirect investments in securities which are not immediately capable of resale in a public market that Apollo identifies but does not pursue through its private equity funds, and (iv) investments of the type described in (i) through (iii) above made by Apollo funds
Redding Ridge
Redding Ridge Asset Management, LLC and its subsidiaries, which is a standalone, self-managed asset management business established in connection with risk retention rules that manages CLOs and retains the required risk retention interests.
SCRF
IV
Structured Credit Recovery Master Fund IV
Traditional private equity funds
Apollo Investment Fund I, L.P. (“Fund I”), AIF II, L.P. (“Fund II”), a mirrored investment account established to mirror Fund I and Fund II for investments in debt securities (“MIA”), Apollo Investment Fund III, L.P. (together with its parallel funds, “Fund III”), Apollo Investment Fund IV, L.P. (together with its parallel fund, “Fund IV”), Apollo Investment Fund V, L.P. (together with its parallel funds and alternative investment vehicles, “Fund V”), Apollo Investment Fund VI, L.P. (together with its parallel funds and alternative investment vehicles, “Fund VI”), Apollo Investment Fund VII, L.P. (together with its parallel funds and alternative investment vehicles,
“Fund VII”), Apollo Investment Fund VIII, L.P. (together with its parallel funds and alternative investment vehicles, “Fund VIII”) and Apollo Investment Fund IX, L.P. (together with its parallel funds and alternative investment vehicles, “Fund IX”).
U.S. RE Fund I
AGRE U.S. Real Estate Fund, L.P., including co-investment vehicles
U.S. RE Fund II
Apollo U.S. Real Estate Fund II, L.P., including co-investment vehicles
U.S. RE Fund III
Apollo U.S. Real Estate Fund III, L.P., including co-investment vehicles
Class A Common Stock, $0.00001 par value, 0 and 90,000,000,000 shares authorized as of June 30, 2022 and December 31, 2021, respectively, 0 and 248,896,649 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively
Distributions related to AGM’s repurchase of Common Stock
i—
(i122,703)
Distributions
related to deliveries of AGM’s Common Stock for RSUs
(i146,904)
(i63,673)
Dividends
/ Distributions
(i458,520)
(i263,818)
Distributions
paid to non-controlling interests in Apollo Operating Group
i—
(i283,624)
AOG
Unit Payment
(i131,450)
i—
Due
to parent, net
i479,064
i—
Other
financing activities, net
(i2,787)
(i1,601)
Apollo
Funds and VIE related:
Issuance of debt
i1,760,996
i773,961
Principal
repayment of debt
(i668,362)
(i1,330,790)
Distributions
paid to non-controlling interests in consolidated entities
(i501,522)
(i500,483)
Contributions
from non-controlling interests in consolidated entities
i1,496,857
i1,012,492
Distributions
to redeemable non-controlling interests
(i776,272)
i
Payment
of underwriting discounts
i—
(i27,730)
Proceeds
from issuance of Class A Units of a SPAC
i—
i690,000
Net
Cash Provided by (Used in) Financing Activities
$
i981,739
$
(i176,181)
Net
Increase in Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, and Cash and Cash Equivalents Held at Consolidated Funds and VIEs
i166,582
i1,688,819
Cash
and Cash Equivalents, Restricted Cash and Cash Equivalents, and Cash and Cash Equivalents Held at Consolidated Funds and VIEs, Beginning of Period
i2,088,334
i2,466,531
Cash
and Cash Equivalents, Restricted Cash and Cash Equivalents, and Cash and Cash Equivalents Held at Consolidated Funds and VIEs, End of Period
$
i2,254,916
$
i4,155,350
Supplemental
Disclosure of Cash Flow Information:
Interest paid
$
i59,590
$
i67,615
Interest
paid by consolidated variable interest entities
i170,479
i132,113
Income
taxes paid
i75,817
i38,478
Supplemental
Disclosure of Non-Cash Investing Activities:
Distributions from principal investments
$
i4,580
$
i146,352
Supplemental
Disclosure of Non-Cash Financing Activities:
Capital increases related to equity-based compensation
$
i232,903
$
i86,258
Non-Cash
Contributions
i334,919
i—
Issuance
of restricted shares
i31,469
i3,214
Other
non-cash financing activities
(i1,361)
(i1,295)
Changes
in Consolidation:
Investments, at fair value
(i16,054,540)
i229,717
Other
assets
(i184,109)
i5,680
Debt
at Fair Value
i9,350,540
i—
Notes
payable
i2,611,019
(i107,500)
Other
liabilities
i528,595
(i2,682)
Non-controlling
interest
i4,693,618
(i125,215)
Adjustments
related to exchange of Apollo Operating Group units:
Deferred tax assets
$
i—
$
i45,479
Due
to related parties
i—
(i38,229)
Additional
paid in capital
i—
(i7,250)
Non-controlling
interest in Apollo Operating Group
i—
i15,358
Reconciliation
of Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, and Cash and Cash Equivalents Held at Consolidated Variable Interest Entities to the Consolidated Statements of Financial Condition:
Cash and cash equivalents
$
i1,545,343
$
i1,824,712
Restricted
cash and cash equivalents
i693,326
i1,524,902
Cash
and cash equivalents held at consolidated variable interest entities
i16,247
i805,736
Total
Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, and Cash and Cash Equivalents Held at Consolidated Variable Interest Entities
$
i2,254,916
$
i4,155,350
See
accompanying notes to unaudited condensed consolidated financial statements.
(dollars in thousands, except share data, except where noted)
1.
iORGANIZATION
Apollo Asset Management, Inc. (“AAM”, together with its consolidated subsidiaries, the “Company” or “Apollo”) is a high-growth, global alternative asset manager whose predecessor was founded in 1990. Its primary business is to raise, invest and manage funds on behalf of pension, endowment and sovereign wealth funds, as well as other institutional and individual investors.
For these investment management services, Apollo receives management fees generally related to the amount of assets managed, transaction and advisory fees, incentive fees and performance allocations related to the performance of the respective funds that it manages. As of June 30, 2022, Apollo had itwo primary business segments:
•Asset Management — focuses on ithree
investing strategies: yield, hybrid and equity; yield focuses on generating excess returns through high quality credit underwriting and origination of safe-yielding assets; hybrid focuses across debt and equity to offer a differentiated risk-adjusted return with an emphasis on structured downside protected opportunities across asset classes; and within equity, controlled transactions are principally buyouts, corporate carveouts and distressed investments, while our real estate funds generally focus on single asset, portfolio and platform acquisitions;
•Principal Investing — primarily includes our general partner investments in the funds we manage, where we earn realized performance fee income based on the investment performance of these funds. Principal investing also includes our growth capital and liquidity resources, and seeks to deploy capital into strategic investments over
time to help accelerate the growth of the asset management segment.
As of June 30, 2022, the Company owned i57.4%
of the economic interests of, and operated and controlled all of the businesses and affairs of, the Apollo Operating Group. The remaining i42.6% of the economic interests of the Apollo Operating Group are owned by Apollo Global Management, Inc. (“AGM”).
/
Apollo and Athene Merger
On January 1, 2022, Apollo and Athene Holding Ltd. (“Athene”) completed the previously
announced merger transactions pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) by and among AAM, Tango Holdings, Inc., a Delaware corporation and a then wholly-owned subsidiary of AAM (“HoldCo”), Blue Merger Sub, Ltd., a Bermuda exempted company and a direct wholly-owned subsidiary of HoldCo (“AHL Merger Sub”), and Green Merger Sub, Inc., a Delaware corporation and a direct wholly-owned subsidiary of HoldCo (“AAM Merger Sub”). At the closing of the transactions, AHL Merger Sub merged with and into AHL (the “AHL Merger”), with AHL as the surviving entity in the AHL Merger and a subsidiary of HoldCo, and AAM Merger Sub merged with and into AAM (the “AAM Merger” and, together with the AHL Merger, the “Mergers”) with AAM as the surviving entity in the AAM Merger and a subsidiary of HoldCo.
In
connection with the closing of the Mergers, HoldCo was renamed “Apollo Global Management, Inc.” Following the closing of the Mergers, all of the common shares of AHL and AAM are owned by AGM.
In connection with the closing of the Mergers, the Company completed a corporate recapitalization (the “Corporate Recapitalization”) which resulted in the recapitalization of AGM from an umbrella partnership C corporation (“up-C”) structure to a corporation with a single class of common stock with ione
vote per share.
Griffin Capital Contributions
On March 1, 2022, AGM, the parent company of AAM, completed the acquisition of Griffin Capital’s U.S. wealth distribution business. On May 3, 2022, AGM completed the acquisition of Griffin Capital’s U.S. asset management business. On the dates of each acquisition, AGM concurrently executed agreements pursuant to which AGM contributed its interests in the respective Griffin Capital businesses to subsidiaries of AAM.
(dollars in thousands, except share data, except where noted)
2. iSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
i
Basis
of Presentation
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). These condensed consolidated financial statements should be read in conjunction with the annual financial statements included in the 2021 Annual Report. Certain disclosures included in the annual financial statements have been condensed or omitted as they are not required for interim financial statements under U.S. GAAP and the rules of the SEC. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year.
The results of the Company and its subsidiaries
are presented on a consolidated basis. Any ownership interest other than the Company’s interest in its subsidiaries is reflected as a non-controlling interest. Intercompany accounts and transactions have been eliminated. Management believes it has made all necessary adjustments (consisting only of normal recurring items) so that the condensed consolidated financial statements are presented fairly and that any estimates made are reasonable and prudent. Certain reclassifications have been made to previously reported amounts to conform to the current period’s presentation.
i
Consolidation
When
an entity is consolidated, the accounts of the consolidated entity, including its assets, liabilities, revenues, expenses and cash flows, are presented on a gross basis. Consolidation does not have an effect on the amounts of net income reported. The Company consolidates entities where it has a controlling financial interest unless there is a specific scope exception that prevents consolidation.
The types of entities with which the Company is involved generally include, but are not limited to:
•Subsidiaries, including management companies and general partners of funds that the
Company manages
•Entities that have attributes of an investment company (e.g., funds)
Each of these entities is assessed for consolidation depending on the specific facts and circumstances surrounding that entity. In determining whether to consolidate an entity, the Company first evaluates whether the entity is a variable interest entity (“VIE”) or a voting interest entity (“VOE”) and applies the appropriate consolidation model as discussed below. If an entity is not consolidated,
then the Company’s investment is generally accounted for under the equity method of accounting or as a financial instrument as discussed in the related policy discussions below.
Assets and liabilities of the consolidated VIEs, other than SPACs, are primarily shown in separate sections within the condensed consolidated statements of financial condition. Changes in the fair value of the consolidated VIEs’ assets and liabilities and related interest, dividend and other income and expenses are primarily presented within net gains from investment activities of consolidated variable interest entities in the condensed consolidated statements of operations. The portion attributable to non-controlling interests is reported within net income attributable to non-controlling interests in the condensed consolidated statements of operations. For additional
disclosures regarding VIEs, see notes 6 and 14.
Investment Companies
Funds we manage that meet the investment company criteria reflect their investments at fair value as required by specialized accounting guidance. Judgment is required to evaluate whether entities have the characteristics of an investment company and are thus eligible to be accounted for as an investment company. Funds managed by the Company are generally accounted for as investment companies, and they are not required to consolidate their investments in operating companies. The Company has retained this specialized accounting for investment companies in consolidation.
(dollars in thousands, except share data, except where noted)
Variable Interest Entities
All entities are first considered under the VIE model. VIEs are entities that i) do not have sufficient equity at risk to finance its activities without additional subordinated financial support or ii) have equity investors that do not have the ability to make significant decisions related to the entity’s operations, absorb expected losses, or receive expected residual returns.
The
Company consolidates a VIE if it is the primary beneficiary of the entity. The Company is deemed the primary beneficiary when it has a controlling financial interest in the VIE, which is defined as possessing both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance (“primary beneficiary power”) and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant (“significant variable interest”). The Company performs the VIE and primary beneficiary assessment at inception of its involvement with a VIE and on an ongoing basis if facts and circumstances change.
To assess whether the
Company has the primary beneficiary power under the VIE consolidation model, it considers the design of the entity as well as ongoing rights and responsibilities. In general, the parties that can make the most significant decisions regarding asset management, servicing, liquidation rights or have the right to unilaterally remove those decision-makers are deemed to have primary beneficiary power. To assess whether the Company has a significant variable interest, the Company considers all its economic interests that are considered variable interests in the entity including interests held through related parties. This assessment requires judgment in considering whether those interests are significant.
Voting Interest Entities
For
entities that are not determined to be VIEs, the entities are generally considered VOEs. Under the VOE model, Apollo consolidates those entities it controls through a majority voting interest. Apollo does not consolidate those VOEs in which substantive kick-out rights have been granted to the unrelated investors to either dissolve the fund or remove the general partner.
i
Use of Estimates
The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts in the financial statements and the related footnotes.
Apollo’s most significant estimates include goodwill, intangible assets, income taxes, performance allocations, incentive fees, contingent consideration obligations related to an acquisition, non-cash compensation, and fair value of investments and debt. While such impact may change considerably over time, the estimates and assumptions affecting the Company’s condensed consolidated financial statements are based on the best available information as of June 30, 2022. Actual results could differ materially from those estimates.
i
Cash
and Cash Equivalents
Apollo considers all highly liquid short-term investments with original maturities of three months or less when purchased to be cash equivalents. Restricted cash and cash equivalents are reported separately as discussed below. Cash and cash equivalents include money market funds and U.S. Treasury securities. Interest income from cash and cash equivalents is recorded in interest income in the condensed consolidated statements of operations. The carrying values of the money market funds and U.S. Treasury securities represent their fair values due to their short-term nature. Substantially all of the Company’s cash on deposit is in interest bearing accounts with major financial institutions and exceed insured limits.
Restricted Cash and Cash Equivalents
Restricted
cash and cash equivalents represent balances that are restricted as to withdrawal or usage.
Restricted cash and cash equivalents of Apollo Strategic Growth Capital II (“APSG II”), a consolidated SPAC, is held in trust accounts and includes money market funds and U.S. Treasury bills with original maturities of three months or less, that were purchased with funds raised through the respective initial public offering of the consolidated entity. The $i691.1 million in funds for APSG II as of June 30, 2022
is restricted for use and may only be used for purposes of completing an initial business combination or redemption of public shares as set forth in APSG II’s trust agreement. Refer to note 14 for further detail.
i
U.S. Treasury securities, at fair value
U.S. Treasury securities, at fair value includes U.S. Treasury bills with original maturities greater than three months when purchased. These securities are recorded at fair value within investments on the condensed consolidated statements of financial
(dollars in thousands, except share data, except where noted)
condition. Interest income on such securities is separately presented from the overall change in fair value and is recognized in interest income in the condensed consolidated statements of operations. Any remaining change in fair value of such securities, that is not recognized as interest income, is recognized in net gains (losses) from investment activities in the condensed consolidated statements of operations. Securities are generally recognized on a trade date basis.
U.S. Treasury securities, at fair value of Acropolis Infrastructure
Acquisition Corp. (“Acropolis”), a consolidated SPAC, is held in a trust account and consists of U.S Treasury bills that were purchased with funds raised through the initial public offering of the consolidated entity. The $i345.6 million in funds as of June 30, 2022 are restricted for use and may only be used for purposes of completing an initial business combination or redemption of public shares as set forth in the trust agreement.
i
Fair
Value of Financial Instruments
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in an orderly transaction. Changes in the fair value of financial instruments are recorded and presented in net gains (losses) from investment activities except for certain investments for which the Company is entitled to receive performance allocations. For those investments, changes in fair value are presented in principal investment income and are included within Investment income (loss) in the condensed consolidated statement of operations.
Financial instruments are generally recorded at fair value or at amounts whose carrying values approximate fair value. The
actual realized gains or losses will depend on, among other factors, future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may ultimately differ significantly from the assumptions on which the valuations were based.
Fair Value Option
Entities are permitted to elect the fair value option (“FVO”) to carry at fair value certain financial assets and financial liabilities. The FVO election is irrevocable and can be applied to eligible financial instruments on an individual basis at initial recognition or at eligible remeasurement events.
The Company has elected the FVO for financial instruments held by its consolidated CLOs,
which includes investments in loans and corporate bonds, as well as debt obligations and contingent obligations. Certain consolidated VIEs have applied the fair value option for investments in private debt securities that otherwise would not have been carried at fair value with gains and losses in net income. The Company has also elected the FVO for certain investments otherwise accounted for under the equity method of accounting. Refer to note 4 for additional information and other instances of when the Company has elected the FVO.
Fair Value Hierarchy
U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in
measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:
Level I - Quoted prices are available in active markets for identical financial instruments as of the reporting date. The types of financial instruments included
in Level I include listed equities and debt. The Company does not adjust the quoted price for these financial instruments, even in situations where the Company holds a large position and the sale of such position would likely deviate from the quoted price.
Level II - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Financial instruments that are generally included in this category include corporate bonds and loans, less liquid and restricted equity securities and certain over-the-counter derivatives where the fair value is based on
(dollars in thousands, except share data, except where noted)
observable inputs. These financial instruments exhibit higher levels of liquid market observability as compared to Level III financial instruments.
Level III - Pricing inputs are unobservable for the financial instrument and includes situations where there is little observable market activity for the financial instrument. The inputs into the determination of fair value may require significant management judgment or estimation. Financial instruments that are included in this category generally include general and
limited partner interests in equity and hybrid funds, distressed debt and non-investment grade residual interests in securitizations, and CDOs and CLOs where the fair value is based on observable inputs as well as unobservable inputs.
When a security is valued based on broker quotes, the Company subjects those quotes to various criteria in making the determination as to whether a particular financial instrument would qualify for classification as Level II or Level III. These criteria include, but are not limited to, the number and quality of the broker quotes, the standard deviations of the observed broker quotes, and the percentage deviation from external pricing services.
Investments in securities that are traded on a securities exchange or comparable over-the-counter quotation systems are valued
based on the last reported sale price at that date. If no sales of such investments are reported on such date, and in the case of over-the-counter securities or other investments for which the last sale date is not available, valuations are based on independent market quotations obtained from market participants, recognized pricing services or other sources deemed relevant, and the prices are based on the average of the “bid” and “ask” prices, or at ascertainable prices at the close of business on such day. Market quotations are generally based on valuation pricing models or market transactions of similar securities adjusted for security-specific factors such as relative capital structure priority and interest and yield risks, among other factors. When market quotations are not available, a model based approach is used to determine fair value.
In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument when the fair value is based on unobservable inputs.
i
Equity Method Investments
For
equity investments in entities where the Company exercises significant influence but does not meet the requirements for consolidation and has not elected the fair value option, the Company uses the equity method of accounting. Under the equity method of accounting, the Company records its share of the underlying income or loss of such entities adjusted for distributions. The Company’s share of the underlying net income or loss of such entities is recorded in Investment income (loss) in the condensed consolidated statements of operations.
The carrying amounts of equity method investments
are recorded in investments in the condensed consolidated statements of financial condition. Generally, the underlying entities that the Company manages and invests in are investment companies and the carrying value of the Company’s equity method investments approximates fair value.
i
Financial Instruments
held by Consolidated VIEs
Under a measurement alternative permissible for consolidated collateralized financing entities, the Company measures both the financial assets and financial liabilities of consolidated CLOs in its condensed consolidated financial statements using the fair value of the financial assets or financial liabilities, whichever are more observable.
Where financial assets are more observable, the financial assets of the consolidated CLOs are measured at fair value and the financial liabilities are measured in consolidation as: (i) the sum of the fair value of the financial assets and the carrying value of any nonfinancial assets that are incidental to the operations of the CLOs less (ii) the sum of the fair value of any beneficial interests retained by the
Company (other than those that represent compensation for services) and the Company’s carrying value of any beneficial interests that represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interest retained by the Company) using a reasonable and consistent methodology.
Where financial liabilities are more observable, the financial liabilities of the consolidated CLOs are measured at fair value and the financial assets are measured in consolidation as: (i) the sum of the fair value of the financial liabilities, and the carrying value of any nonfinancial liabilities that are incidental to the operations of the CLOs less (ii) the carrying value of any
(dollars in thousands, except share data, except where noted)
nonfinancial assets that are incidental to the operations of the CLOs. The resulting amount is allocated to the individual financial assets using a reasonable and consistent methodology.
Net income attributable to Apollo Asset Management, Inc. reflects the Company’s own economic interests in the consolidated CLOs including (i) changes in the fair value of the beneficial interests retained by the
Company and (ii) beneficial interests that represent compensation for collateral management services.
i
Deferred Revenue
Apollo records deferred revenue, which is a type of contract liability, when consideration is received in advance of management services provided.
Apollo also earns management fees subject to the Management
Fee Offset (described below). When advisory and transaction fees are earned by the management company, the Management Fee Offset reduces the management fee obligation of the fund. When the Company receives cash for advisory and transaction fees, a certain percentage of such advisory and/or transaction fees, as applicable, is allocated as a credit to reduce future management fees, otherwise payable by such fund. Such credit is recorded as deferred revenue in the condensed consolidated statements of financial condition. A portion of any excess advisory and transaction fees may be required to be returned to the limited partners of certain funds upon such fund’s liquidation. As the management fees earned by the Company are presented on a gross basis, any Management Fee Offsets calculated are presented
as a reduction to advisory and transaction fees in the condensed consolidated statements of operations.
Additionally, Apollo earns advisory fees pursuant to the terms of the advisory agreements with certain of the portfolio companies that are owned by the funds Apollo manages. When Apollo receives a payment from a portfolio company that exceeds the advisory fees earned at that point in time, the excess payment is recorded as deferred revenue in the condensed consolidated statements of financial condition. The advisory agreements with the portfolio companies vary in duration and the associated fees are received monthly, quarterly or annually.
Deferred revenue is reversed and recognized as revenue over the period that the agreed upon services are performed. There was $i109.0
million of revenue recognized during the six months ended June 30, 2022 that was previously deferred as of January 1, 2022.
Under the terms of the funds’ partnership agreements, Apollo is normally required to bear organizational expenses over a set dollar amount and placement fees or costs in connection with the offering and sale of interests in the funds it manages to investors. The placement fees are payable to placement agents, who are independent third parties that assist in identifying potential investors, securing commitments to invest from such potential investors, preparing or revising offering and marketing materials, developing strategies for attempting to secure investments by potential investors and/or providing feedback and insight regarding issues and concerns of potential investors, when a limited partner either
commits or funds a commitment to a fund. In cases where the limited partners of the funds are determined to be the customer in an arrangement, placement fees may be capitalized as a cost to acquire a customer contract, and amortized over the life of the customer contract. Capitalized placement fees are recorded within other assets in the condensed consolidated statements of financial condition, while amortization is recorded within placement fees in the condensed consolidated statements of operations. In certain instances, the placement fees are paid over a period of time. Based on the management agreements with the funds, Apollo considers placement fees and organizational costs paid in determining if cash has been received in excess of the management fees earned. Placement fees and organizational
costs are normally the obligation of Apollo but can be paid for by the funds. When these costs are paid by the fund, the resulting obligations are included within deferred revenue. The deferred revenue balance will also be reduced during future periods when management fees are earned but not paid.
/
iRedeemable non-controlling
interests
Redeemable non-controlling interests represent the shares issued by APSG II and Acropolis, the consolidated SPACs as of June 30, 2022, that are redeemable for cash by the respective public shareholders in connection with the applicable SPAC’s failure to complete a business combination or its tender offer/stockholder approval provisions. The redeemable non-controlling interests are initially recorded at their original issue price, net of issuance costs and the initial fair value of separately traded warrants. The carrying amount is accreted to its redemption value over the period from the date of issuance to the earliest redemption date of the instrument. The accretion to redemption value is recorded against additional paid-in capital. Refer to note 14 for further detail.
(dollars in thousands, except share data, except where noted)
Revenues
The Company’s revenues include (i) management fees; (ii) advisory and transaction fees, net; (iii) investment income, which is comprised of performance allocations and principal investment income; and (iv) incentive fees.
The Company is required to recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services (i.e., the transaction price). When determining the transaction price, the Company may recognize variable consideration only to the extent that it is probable to not be significantly reversed. The Company is also required to disclose the nature, amount, timing, and uncertainty of revenue that is recognized.
Performance allocations are accounted for as equity method investments. The Company recognizes performance allocations within investment income along with the related principal investment income (as further described below) in
the condensed consolidated statements of operations and within the investments line in the condensed consolidated statements of financial condition.
Refer to disclosures below for additional information on each of the Company’s revenue streams.
i
Management Fees
Management fees are recognized over time during the periods in which the related services are performed in accordance with the contractual terms of the
related agreement. Management fees are generally based on (1) a percentage of the capital committed during the commitment period, and thereafter based on the remaining invested capital of unrealized investments, or (2) net asset value, gross assets or as otherwise defined in the respective agreements. Included in management fees are certain expense reimbursements where the Company is considered the principal under the agreements and is required to record the expense and related reimbursement revenue on a gross basis.
i
Advisory
and Transaction Fees, Net
Advisory fees, including management consulting fees and directors’ fees, are generally recognized over time as the underlying services are provided in accordance with the contractual terms of the related agreement. The Company receives such fees in exchange for ongoing management consulting services provided to portfolio companies of funds it manages. Transaction fees, including structuring fees and arranging fees related to the Company’s funds, portfolio companies of funds and third parties are generally recognized at a point in time when the underlying services rendered are complete.
The amounts due from fund portfolio companies are recorded in due from related parties on the condensed
consolidated statements of financial condition, which is discussed further in note 14. Under the terms of the limited partnership agreements for certain funds, the management fee payable by the funds may be subject to a reduction based on a certain percentage of such advisory and transaction fees, net of applicable broken deal costs (“Management Fee Offset”). Advisory and transaction fees are presented net of the Management Fee Offset in the condensed consolidated statements of operations.
Underwriting fees, which are also included within advisory and transaction fees, net, include gains, losses and fees, arising from securities offerings in which one of the Company’s subsidiaries participates in the underwriter syndicate. Underwriting fees
are recognized at a point in time when the underwriting is completed. Underwriting fees recognized but not received are recorded in other assets on the condensed consolidated statements of financial condition.
During the normal course of business, the Company incurs certain costs related to certain transactions that are not consummated (“broken deal costs”). These costs (e.g., research costs, due diligence costs, professional fees, legal fees and other related items) are determined to be broken deal costs upon management’s decision to no longer pursue the transaction. In accordance with the related fund agreement, in the event the deal is deemed broken, all of the costs are reimbursed by the funds and then included as a component of the calculation of the Management Fee Offset. If a deal is successfully completed, Apollo is
reimbursed by the fund or fund’s portfolio company for all costs incurred and no offset is generated. As the Company acts as an agent for the funds it manages, any transaction costs incurred and paid by the Company on behalf of the respective funds relating to successful or broken deals are recorded net on the Company’s condensed consolidated statements of operations, and any receivable from the respective funds is recorded in due from related parties on the condensed consolidated statements of financial condition.
(dollars in thousands, except share data, except where noted)
i
Investment Income
Investment income is comprised of performance allocations and principal investment income.
Performance
Allocations
Performance allocations are a type of performance revenue (i.e., income earned based on the extent to which an entity’s performance exceeds predetermined thresholds). Performance allocations are generally structured from a legal standpoint as an allocation of capital in which the Company’s capital account receives allocations of the returns of an entity when those returns exceed predetermined thresholds. The determination of which performance revenues are considered performance allocations is primarily based on the terms of an agreement with the entity.
The Company recognizes performance allocations within investment income along with the related principal investment income (as described further
below) in the condensed consolidated statements of operations and within the investments line in the condensed consolidated statements of financial condition.
When applicable, the Company may record a general partner obligation to return previously distributed performance allocations. The general partner obligation is based upon an assumed liquidation of a fund’s net assets as of the reporting date and is reported within due to related parties on the condensed consolidated statements of financial condition. The actual determination and any required payment of any such general partner obligation would not take place until the final disposition of a fund’s investments based on the contractual termination of the fund or as otherwise set forth in the respective limited partnership agreement or other governing document of the fund.
Principal
Investment Income
Principal investment income includes the Company’s income or loss from equity method investments and certain other investments in entities in which the Company is generally eligible to receive performance allocations. Income from equity method investments includes the Company’s share of net income or loss generated from its investments, which are not consolidated, but in which the Company exerts significant influence.
i
Incentive
Fees
Incentive fees are a type of performance revenue. Incentive fees differ from performance allocations in that incentive fees do not represent an allocation of capital but rather a contractual fee arrangement with the entity.
Incentive fees are considered a form of variable consideration as they are subject to clawback or reversal and therefore must be deferred until the fees are probable to not be significantly reversed. Accrued but unpaid incentive fees are reported within incentive fees receivable in the Company’s condensed consolidated statements of financial condition. The Company’s incentive fees primarily relate to the yield investing strategy and are generally received from CLOs, managed accounts
and AINV.
Compensation and Benefits
i
Salaries, Bonus and Benefits
Salaries, bonus and benefits include base salaries, discretionary and non-discretionary bonuses, severance and employee benefits. Bonuses are generally accrued over the related service period.
i
Equity-Based
Compensation
Equity-based awards granted to employees and non-employees as compensation are measured based on the grant date fair value of the award. Equity-based awards that do not require future service (i.e., vested awards) are expensed immediately. Equity-based employee awards that require future service are expensed over the relevant service period. In addition, certain restricted share units (“RSUs”) granted by AGM vest based on both continued service and the Company’s receipt of performance revenues, within prescribed periods, sufficient to cover the associated equity-based compensation expense. In accordance with U.S. GAAP, equity-based compensation expense for such awards, if and when granted, will be recognized on an accelerated recognition method over the requisite service period to the extent the performance revenue metrics
are met or deemed probable. The Company accounts for forfeitures of equity-based awards when they occur.
(dollars in thousands, except share data, except where noted)
i
Profit
Sharing
Profit sharing expense and profit sharing payable primarily consist of a portion of performance revenues earned from certain funds that are allocated to employees and former employees. Profit sharing amounts are recognized as the related performance revenues are earned. Accordingly, profit sharing amounts can be reversed during periods when there is a decline in performance revenues that were previously recognized.
Profit sharing amounts are generally not paid until the related performance revenue is distributed to the general partner upon realization of the fund’s investments. Under certain profit sharing arrangements, the Company requires that a portion of certain of the performance revenues distributed to its employees be used to purchase restricted common stock issued under AGM’s Equity
Plan. Prior to distribution of the performance revenue, the Company records the value of the equity-based awards expected to be granted in other assets and other liabilities within the condensed consolidated statements of financial condition. Such equity-based awards are recorded as equity-based compensation expense over the relevant service period once granted.
Additionally, profit sharing amounts previously distributed may be subject to clawback from employees and former employees. When applicable, the accrual for potential clawback of previously distributed profit sharing amounts, which is a component of due from related parties on the condensed consolidated statements of financial condition, represents all amounts previously distributed to employees and former employees that would need to be returned to the general partner if the Apollo
funds were to be liquidated based on the fair value of the underlying funds’ investments as of the reporting date. The actual general partner receivable, however, would not become realized until the final disposition of a fund’s investments based on the contractual termination of the fund or as otherwise set forth in the respective limited partnership agreement or other governing document of the fund.
Profit sharing payable also includes contingent consideration obligations that were recognized in connection with certain Apollo acquisitions. Changes in the fair value of the contingent consideration obligations are reflected in the Company’s condensed consolidated statements of operations as profit sharing expense.
The
Company has a performance-based incentive arrangement for certain Apollo partners and employees designed to more closely align compensation on an annual basis with the overall realized performance of the Company. This arrangement enables certain partners and employees to earn discretionary compensation based on performance revenue earned by the Company in a given year, which amounts are reflected in profit sharing expense in the accompanying condensed consolidated financial statements.
i
401(k)
Savings Plan
The Company sponsors a 401(k) savings plan (the “401(k) Plan”) whereby U.S.-based employees are entitled to participate in the 401(k) Plan based upon satisfying certain eligibility requirements. The Company matches i50% of eligible annual employee contributions up to i3%
of the eligible employees’ annual compensation. Matching contributions vest after ithree years of service.
/
iGeneral,
Administrative and Other
General, administrative and other primarily includes professional fees, occupancy, depreciation and amortization, travel, information technology, administration expenses and placement fees.
i
Income Taxes
The Company is a Delaware corporation and generally all of its income is subject to U.S. corporate income taxes. Certain entities within the legal entity
structure of the Company operate as partnerships for U.S. income tax purposes and are subject to NYC Unincorporated Business Tax (“UBT”). Certain non-U.S. entities are also subject to non-U.S. corporate income taxes. The Company is included in the U.S. federal consolidated and certain state combined income tax returns with AGM and its other subsidiaries. For purposes of these separate company consolidated financial statements, the Company’s taxes were determined using the separate return method as if the Company
had filed tax returns separate from AGM. As a result, the tax effects of certain activity and the tax treatment of certain transactions included in the condensed consolidated financial statements of AGM may not be the same in the Company’s separate company consolidated financial statements.
Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties. The Company’s tax positions are reviewed and evaluated quarterly to determine whether the Company has uncertain tax
(dollars in thousands, except share data, except where noted)
positions that require financial statement recognition. The Company recognizes the tax benefit of uncertain tax positions only where the position is “more likely than not” to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If a tax position was not
considered more likely than not to be sustained, then no benefits of the position would be recognized.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the financial statement carrying amount of assets and liabilities and their respective tax bases using currently enacted tax rates in the period the temporary difference is expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period during which the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that all or a portion of the deferred tax assets will not be realized. In determining the realizability of deferred tax assets, the Company evaluates all positive and negative evidence in addition to
the ability to carry back losses, the timing of future reversals of taxable temporary differences, tax planning strategies and future expected earnings.
i
Non-Controlling Interests
For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than the Company. The aggregate of the income or loss and corresponding equity that is not owned by the
Company is included in non-controlling interests in the condensed consolidated financial statements. Prior to the Corporate Recapitalization, the non-controlling interests relating to AGM included the ownership interest in the Apollo Operating Group held by Former Managing Partners and Contributing Partners through their limited partner interests in Holdings. Additionally, Athene held non-controlling interests in the Apollo Operating Group as a result of the Transaction Agreement. Subsequent to the closing of the Mergers, Athene’s interest in the Apollo Operating Group was distributed to AGM. Non-controlling interests also include ownership interests in certain consolidated funds and VIEs.
Non-controlling interests are presented as a separate component of stockholders’ equity on the Company’s condensed consolidated statements of financial
condition. The primary components of Non-controlling interests are separately presented in the Company’s condensed consolidated statements of changes in stockholders’ equity to clearly distinguish the interest in the Apollo Operating Group and other ownership interests in the consolidated entities. Net income includes the net income attributable to the holders of Non-controlling interests on the Company’s condensed consolidated statements of operations. Profits and losses are allocated to Non-controlling interests in proportion to their relative ownership interests regardless of their basis.
Guarantees
See note 15 to the condensed consolidated financial statements for information related to the
Company’s material guarantees.
i
Recent Accounting Pronouncements
Fair Value Measurement — Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03)
In June 2022, the FASB issued clarifying guidance that a restriction which is a characteristic of the holding entity rather than a characteristic of the equity security itself should not be considered in its fair value measurement.
As a result, the Company is required to measure the fair value of equity securities subject to contractual restrictions attributable to the holding entity on the basis of the market price of the same equity security without those contractual restrictions. Companies are not permitted to recognize a contractual sale restriction attributable to the holding entity as a separate unit of account. The guidance also requires disclosures for these equity securities.
The new guidance is mandatorily effective for the Company by January 1, 2024 with early adoption permitted. When adopted, the Company will apply the guidance on a
prospective basis as an adjustment to current-period earnings with the adoption impact disclosed in the period of adoption.
The Company is currently evaluating the new guidance and its impact on the consolidated financial statements.
(dollars in thousands, except share data, except where noted)
Business
Combinations – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08)
In October 2021, the FASB issued guidance to add contract assets and contract liabilities from contracts with customers acquired in a business combination to the list of exceptions to the fair value recognition and measurement principles that apply to business combinations,
and instead require them to be accounted for in accordance with revenue recognition guidance. The new guidance is mandatorily effective for the Company on January 1, 2023 and applied prospectively, with early adoption permitted. All entities except those that qualify as an investment company under Topic 946 are required to apply the amendments prospectively with any adjustments from adoption recorded in current period earnings and amounts disclosed.
The Company is currently evaluating the new guidance and its impact on the consolidated financial statements.
3.
iGOODWILL
In connection with the completion of the Mergers, the Company undertook a strategic review of its operating structure and business segments to assess the performance of its businesses and the allocation of resources. As a result, the Company reorganized into itwo
reportable segments, asset management and principal investing. The Company conducted interim impairment testing immediately prior and subsequent to the reorganization and determined there to be no impairment of historical goodwill.
i
The following table presents Apollo’s goodwill by segment:
The
Company’s parent, AGM, acquired Griffin Capital’s U.S. wealth distribution business and U.S. asset management business in itwo separate closings on March 1, 2022 and May 3, 2022 and recorded goodwill of $i13.1 million
and $i133.6 million, respectively, on each acquisition date. AGM concurrently executed agreements on each acquisition date to contribute its interests in the Griffin Capital businesses to subsidiaries of AAM and applied pushdown accounting, including for the recognition of these goodwill amounts. As a result, AAM reflects the goodwill amounts within the Asset Management segment in the condensed consolidated statements of financial condition.
4.
iINVESTMENTS
i
The following table presents Apollo’s investments:
Investments, at fair value, consist of investments for which the fair value option has been elected and primarily include the Company’s investment in Athora, investments in debt of unconsolidated CLOs and, as of December 31, 2021, included the Company’s investment in Athene Holding. Changes in the fair value related to these investments are presented in net gains (losses) from investment activities except for certain investments for which the Company is entitled to receive performance allocations. For those investments, changes in fair value are presented in principal investment income and are included within
Investment income (loss) in the condensed consolidated statements of operations.
(dollars in thousands, except share data, except where noted)
Prior to the Mergers, the Company’s equity investment in Athene Holding, for which the fair value option was elected, met the significance criteria as defined by
the SEC as of June 30, 2021.
During the first quarter of 2022, the Company’s investment in Athene Holding was distributed to AGM. iAs such, the following tables present summarized financial information of Athene Holding:
Realized gains (losses) on sales of investments, net
$
(i3,690)
$
i1,192
$
i207,531
$
i1,193
Net
change in unrealized gains due to changes in fair value
i149,744
i912,202
i709,785
i1,265,352
Net
gains from investment activities
$
i146,054
$
i913,394
$
i917,316
$
i1,266,545
/
Performance
Allocations
i
Performance allocations receivable is recorded within investments in the condensed consolidated statements of financial condition. The table below provides a roll forward of the performance allocations balance:
The
change in fair value of funds excludes the general partner obligation to return previously distributed performance allocations, which is recorded in due to related parties in the condensed consolidated statements of financial condition. See note 14 for further disclosure regarding the general partner obligation.
The timing of the payment of performance allocations due to the general partner or investment manager varies depending on the terms of the applicable fund agreements. Performance allocations with respect to certain funds are payable and are distributed to the fund’s general partner upon realization of an investment if the fund’s cumulative returns are in excess of the preferred return.
(dollars in thousands, except share data, except where noted)
5. iPROFIT SHARING PAYABLE
Profit sharing payable was $i1.5 billion
and $i1.4 billion as of June 30, 2022 and December 31, 2021, respectively. iThe
table below provides a roll forward of the profit sharing payable balance:
Profit sharing expense
includes (i) changes in amounts payable to employees and former employees entitled to a share of performance revenues in Apollo’s funds and (ii) changes to the fair value of the contingent consideration obligations recognized in connection with certain Apollo acquisitions. Profit sharing expense excludes the potential return of profit sharing distributions that would be due if certain funds were liquidated, which is recorded in due from related parties in the condensed consolidated statements of financial condition. See note 14 for further disclosure regarding the potential return of profit sharing distributions.
As discussed in note 2, under certain profit sharing arrangements, the Company requires that a portion of certain of the performance revenues distributed to its employees of AAM be used to purchase restricted shares of AGM’s common
stock issued under AGM’s Equity Plan. Prior to distribution of the performance revenues, the Company records the value of the equity-based awards expected to be granted in other assets and other liabilities within the condensed consolidated statements of financial condition. See note 8 for further disclosure regarding deferred equity-based compensation.
6. iVARIABLE
INTEREST ENTITIES
A variable interest in a VIE is an investment or other interest that will absorb portions of the VIE’s expected losses and/or receive expected residual returns. Refer to note 2 for more detail about the Company’s VIE assessment and consolidation policy. Variable interests in consolidated VIEs and unconsolidated VIEs are discussed separately below.
Consolidated Variable Interest Entities
Consolidated VIEs include consolidated SPACs as well as certain CLOs and funds managed by the Company. The financial information for these consolidated SPACs are disclosed in note 14.
The assets of consolidated VIEs
are not available to creditors of the Company, and the investors in these consolidated VIEs have no recourse against the assets of the Company. Similarly, there is no recourse to the Company for the consolidated VIEs’ liabilities.
Other assets include interest receivables, receivables from affiliates and due from brokers. Other liabilities include payables for securities purchased, which represent open trades within the consolidated CLOs and primarily relate to corporate loans that are expected to settle within i60
days, debt held at amortized cost and short-term payables.
Included within liabilities of the consolidated VIEs are notes payable related to certain funds managed by the Company. Each series of notes in a respective consolidated VIE participates in distributions from the VIE, including principal and interest from underlying investments. Amounts allocated to the noteholders reflect amounts that would be distributed if the VIE’s assets were liquidated for cash equal to their respective carrying values, its liabilities satisfied in accordance with their terms, and all the remaining amounts distributed to the noteholders. The respective VIEs that issue the notes payable are marked at their prevailing net asset value, which approximates fair value.
Results from certain funds managed by the
Company are reported on a three month lag based upon the availability of financial information.
Net
gains from investment activities of consolidated variable interest entities
$
i36,617
$
i145,403
$
i316,072
$
i257,997
(1)
Amounts reflect consolidation eliminations.
/
Senior Secured Notes, Subordinated Notes, Subscription Lines and Secured Borrowings
Included within debt, at fair value, notes payable, and other liabilities are amounts due to third-party institutions by the consolidated VIEs. iThe following table summarizes the
principal provisions of those amounts.
(1)
The principal outstanding balance of the subordinated notes do not have contractual interest rates but instead receive distributions from the excess cash flows of the VIEs.
(2) The notes, subscription lines and borrowings of the consolidated VIEs are collateralized by assets held by each respective vehicle and assets of one vehicle may not be used to satisfy the liabilities of another vehicle.
(3) As of December 31, 2021, secured borrowings consist of consolidated VIEs’ obligations through a repurchase agreement redeemable at maturity with third party lenders. The fair value of the secured borrowings as of December 31, 2021 approximates principal outstanding
due to the short term nature of the borrowings. These secured borrowings are classified as a Level III liability within the fair value hierarchy.
Unconsolidated Variable Interest Entities
The Company holds variable interests in certain VIEs which are not consolidated, as it has been determined that Apollo is not the primary beneficiary. iThe
following table presents the maximum exposure to losses relating to these VIEs for which Apollo has concluded that it holds a significant variable interest, but that it is not the primary beneficiary.
(1)
Represents Apollo’s direct investment in those entities in which Apollo holds a significant variable interest and certain other investments. Additionally, cumulative performance allocations are subject to reversal in the event of future losses, as discussed in note 15.
(2) Some amounts included are a quarter in arrears.
(1)
Cash and cash equivalents as of June 30, 2022 and December 31, 2021 includes $i0.7 million and $i1.8
million, respectively, of cash and cash equivalents held by consolidated SPACs. Refer to note 14 for further information.
(2) Restricted cash and cash equivalents as of June 30, 2022 and December 31, 2021 includes $i0.7 billion and $i0.7
billion, respectively, of restricted cash and cash equivalents held by consolidated SPACs. Refer to note 14 for further information.
(3) U.S. Treasury securities as of June 30, 2022 and December 31, 2021 includes $i345.6 million and $i1.2
billion, respectively, of U.S. Treasury securities held by consolidated SPACs. Refer to note 14 for further information.
(4) Investments as of June 30, 2022 and December 31, 2021 excludes $i167.5 million and $i175.8
million, respectively, of performance allocations classified as Level III related to certain investments for which the Company has elected the fair value option. The Company’s policy is to account for performance allocations as investments.
(5) Due from related parties represents a receivable from a fund.
(6) Derivative assets and derivative liabilities are presented as a component of Other assets and Other liabilities, respectively, in the condensed consolidated statements of financial condition.
(7)
Profit sharing payable includes contingent obligations classified as Level III.
(8) Other liabilities as of June 30, 2022 includes the publicly traded warrants of APSG II. Other liabilities as of December 31, 2021 includes the publicly traded warrants of APSG I and APSG II.
(dollars in thousands, except share data, except where noted)
i
The following tables summarize the changes in fair value in financial assets measured at fair value for which Level III inputs have been used to determine fair value:
Change
in net unrealized gains included in investment income (loss) related to investments still held at reporting date
$
i30,623
$
i—
$
i30,623
Change
in net unrealized gains included in net gains (losses) from investment activities of consolidated VIEs related to investments still held at reporting date
Change
in net unrealized gains included in investment income (loss) related to investments still held at reporting date
$
i9,137
$
i—
$
i9,137
Change
in net unrealized gains included in net gains (losses) from investment activities of consolidated VIEs related to investments still held at reporting date
i—
i66,050
i66,050
(1)
Transfers between Level II and III were a result of subjecting the broker quotes on these financial assets to various criteria which include the number and quality of broker quotes, the standard deviation of obtained broker quotes and the percentage deviation from external pricing services.
Net
transfer in (out) due to consolidation (deconsolidation)
i21,710
(i14,190,236)
(i14,168,526)
Purchases
i105,702
i3,471,182
i3,576,884
Sale
of investments/distributions
(i4,132)
(i1,839,082)
(i1,843,214)
Net
realized gains
(i2,966)
i21,157
i18,191
Changes
in net unrealized gains
i59,088
i176,381
i235,469
Cumulative
translation adjustment
(i46,812)
(i10,808)
(i57,620)
Transfer
into Level III(1)
i1,004
i29,803
i30,807
Transfer
out of Level III(1)
i—
(i2,934)
(i2,934)
Balance,
End of Period
$
i1,079,778
$
i843,266
$
i1,923,044
Change
in net unrealized gains included in investment income (loss) related to investments still held at reporting date
$
i59,088
$
i—
$
i59,088
Change
in net unrealized gains included in net gains (losses) from investment activities of consolidated VIEs related to investments still held at reporting date
Change
in net unrealized gains included in investment income (loss) related to investments still held at reporting date
$
i29,116
$
i—
$
i29,116
Change
in net unrealized gains included in net gains (losses) from investment activities of consolidated VIEs related to investments still held at reporting date
i—
i198,957
i198,957
(1)
Transfers between Level II and III were a result of subjecting the broker quotes on these financial assets to various criteria which include the number and quality of broker quotes, the standard deviation of obtained broker quotes and the percentage deviation from external pricing services.
(dollars in thousands, except share data, except where noted)
i
The
following tables summarize the changes in fair value in financial liabilities measured at fair value for which Level III inputs have been used to determine fair value:
Change
in net unrealized gains included in net gains (losses) from investment activities of consolidated VIEs related to debt and other liabilities still held at reporting date
Change
in net unrealized gains included in net gains (losses) from investment activities of consolidated VIEs related to debt and other liabilities still held at reporting date
$
i—
$
(i58,909)
$
(i58,909)
(1)
Changes in fair value of contingent consideration obligations are recorded in profit sharing expense in the condensed consolidated statements of operations.
(2) Transfers between Level II and III were a result of subjecting the broker quotes on these financial assets to various criteria which include the number and quality of broker quotes, the standard deviation of obtained broker quotes and the percentage deviation from independent pricing services.
i
The
following tables summarize the quantitative inputs and assumptions used for financial assets and liabilities categorized as Level III under the fair value hierarchy:
EBITDA Earnings before interest, taxes, depreciation, and amortization
NTAV Net tangible asset value
(1) Unobservable inputs were weighted based on the fair value of the investments included in the range.
Fair Value Measurement of Investment in Athene Holding
At December 31, 2021, the fair value of Apollo’s Level I investment in Athene Holding was estimated using the closing market price of Athene Holding shares of $i83.33.
Following the Mergers, AAM no longer holds an interest in AHL as further described in note 14.
(dollars in thousands, except share data, except where noted)
Discounted Cash Flow Model
When a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to present value the
projected cash flows. Increases in the discount rate can significantly lower the fair value of an investment and the contingent consideration obligations; conversely decreases in the discount rate can significantly increase the fair value of an investment and the contingent consideration obligations.
Consolidated VIEs’ Investments
The significant unobservable inputs used in the fair value measurement of the equity securities include the discount rate applied, purchase multiple and net tangible asset value in the valuation models. These unobservable inputs in isolation can cause significant increases or decreases in fair value. The discount rate is determined based on the market rates an investor would expect for a similar investment with similar risks.
The significant unobservable inputs used in the fair value measurement of bank loans,
bonds, profit participating notes, and other equity investments are discount rates. Significant increases (decreases) in discount rates would result in significantly lower (higher) fair value measurements.
The significant unobservable inputs used in the fair value measurement of real estate are discount rates and capitalization rates. Significant increases (decreases) in any discount rates or capitalization rates in isolation would result in significantly lower (higher) fair value measurements.
Certain investments of VIEs are valued using the NAV per share equivalent calculated by the investment manager as a practical expedient to determine an independent fair value.
Consolidated VIEs’ Liabilities
The debt obligations of certain consolidated VIEs, that are CLOs, were measured on the basis of the
fair value of the financial assets of those CLOs as the financial assets were determined to be more observable and, as a result, categorized as Level II in the fair value hierarchy.
The significant unobservable inputs used in the fair value measurement of the Company’s liabilities of consolidated VIEs are discount rates. Significant increases (decreases) in discount rates would result in a significantly lower (higher) fair value measurement.
Certain liabilities of VIEs are valued using the NAV per share equivalent calculated by the investment manager as a practical expedient to determine an independent fair value.
Contingent Consideration Obligations
The significant unobservable input used in the fair value
measurement of the contingent consideration obligations is the discount rate applied in the valuation models. This input in isolation can cause significant increases or decreases in fair value. The discount rate was based on the hypothetical cost of equity in connection with the acquisition of Stone Tower. See note 15 for further discussion of the contingent consideration obligations.
Valuation of Underlying Investments
As discussed previously, the underlying entities that the Company manages and invests in are primarily investment companies which account for their investments at estimated fair value.
On a quarterly basis, Apollo utilizes valuation committees consisting of members from senior management, to review and approve the valuation results related
to the investments of the funds it manages. For certain publicly traded vehicles managed by the Company, a review is performed by an independent board of directors. The Company also retains external valuation firms to provide third-party valuation consulting services to Apollo, which consist of certain limited procedures that management identifies and requests them to perform. The limited procedures provided by the external valuation firms assist management with validating their valuation results or determining fair value. The Company performs various back-testing procedures to validate their valuation approaches, including comparisons between expected and observed outcomes, forecast evaluations and variance analyses.
However, because of the inherent uncertainty of valuation, those estimated values may differ
(dollars in thousands, except share data, except where noted)
significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.
Yield Investments
Yield
investments are generally valued based on third party vendor prices and/or quoted market prices and valuation models. Valuations using quoted market prices are based on the average of the “bid” and the “ask” quotes provided by multiple brokers wherever possible without any adjustments. Apollo will designate certain brokers to use to value specific securities. In determining the designated brokers, Apollo considers the following: (i) brokers with which Apollo has previously transacted, (ii) the underwriter of the security and (iii) active brokers indicating executable quotes. In addition, when valuing a security based on broker quotes wherever possible Apollo tests the standard deviation amongst the quotes received and the variance between the concluded fair value and the value provided by a pricing service. When broker quotes are not available Apollo considers the use of pricing service quotes or other sources to mark a position. When relying on a pricing
service as a primary source, Apollo (i) analyzes how the price has moved over the measurement period, (ii) reviews the number of brokers included in the pricing service’s population, if available, and (iii) validates the valuation levels with Apollo’s pricing team and traders.
Debt securities that are not publicly traded or whose market prices are not readily available are valued at fair value utilizing a model based approach to determine fair value. Valuation approaches used to estimate the fair value of illiquid credit investments also may include the income approach, as described below. The valuation approaches used consider, as applicable, market risks, credit risks, counterparty risks and foreign currency risks.
Equity and Hybrid Investments
The majority of illiquid equity and hybrid investments are valued using the market approach
and/or the income approach, as described below.
Market Approach
The market approach is driven by current market conditions, including actual trading levels of similar companies and, to the extent available, actual transaction data of similar companies. Judgment is required by management when assessing which companies are similar to the subject company being valued. Consideration may also be given to any of the following factors: (1) the subject company’s historical and projected financial data; (2) valuations given to comparable companies; (3) the size and scope of the subject company’s operations; (4) the subject company’s individual strengths and weaknesses; (5) expectations relating to the market’s receptivity to an offering of the subject company’s securities; (6) applicable restrictions on transfer; (7) industry and market information; (8) general economic and market conditions;
and (9) other factors deemed relevant. Market approach valuation models typically employ a multiple that is based on one or more of the factors described above.
Enterprise value as a multiple of EBITDA is common and relevant for most companies and industries, however, other industry specific multiples are employed where available and appropriate.Sources for gaining additional knowledge related to comparable companies include public filings, annual reports, analyst research reports, and press releases. Once a comparable company set is determined, Apollo reviews certain aspects of the subject company’s performance and determines how its performance compares to the group and to certain individuals in the group. Apollo compares certain measurements such as EBITDA margins, revenue growth over
certain time periods, leverage ratios and growth opportunities. In addition, Apollo compares the entry multiple and its relation to the comparable set at the time of acquisition to understand its relation to the comparable set on each measurement date.
Income Approach
The income approach provides an indication of fair value based on the present value of cash flows that a business or security is expected to generate in the future. The most widely used methodology for the income approach is a discounted cash flow method. Inherent in the discounted cash flow method are significant assumptions related to the subject company’s expected results, the determination of a terminal value and a calculated discount rate, which is normally based on the subject company’s weighted average cost of capital, or “WACC.” The WACC represents the required rate of return on total capitalization,
which is comprised of a required rate of return on equity, plus the current tax-effected rate of return on debt, weighted by the relative percentages of equity and debt that are typical in the industry. The most critical step in determining the appropriate WACC for each subject company is to select companies that are comparable in nature to the subject company and the credit quality of the subject company. Sources for gaining additional knowledge about the comparable companies include public filings, annual reports, analyst research reports, and press releases. The general formula then used for calculating the WACC considers the
(dollars in thousands, except share data, except where noted)
after-tax rate of return on debt capital and the rate of return on common equity capital, which further considers the risk-free rate of return, market beta, market risk premium and small stock premium, if applicable. The variables used in the WACC formula are inferred from the comparable market data obtained. The Company evaluates the comparable companies selected and concludes on WACC inputs based on the most comparable company or analyzes the range of data for the investment.
The
value of liquid investments, where the primary market is an exchange (whether foreign or domestic), is determined using period end market prices. Such prices are generally based on the close price on the date of determination.
Certain of the funds Apollo manages may also enter into foreign currency exchange contracts, total return swap contracts, credit default swap contracts, and other derivative contracts, which may include options, caps, collars and floors. Foreign currency exchange contracts
are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. If securities are held at the end of the period, the changes in value are recorded in income as unrealized. Realized gains or losses are recognized when contracts are settled. Total return swap and credit default swap contracts are recorded at fair value as an asset or liability with changes in fair value recorded as unrealized appreciation or depreciation. Realized gains or losses are recognized at the termination of the contract based on the difference
between the close-out price of the total return or credit default swap contract and the original contract price. Forward contracts are valued based on market rates obtained from counterparties or prices obtained from recognized financial data service providers.
(1)
Deferred equity-based compensation relates to the value of equity-based awards that have been or are expected to be granted in connection with the settlement of certain profit sharing arrangements. A corresponding amount for awards expected to be granted of $i187.6 million and $i210.6
million, as of June 30, 2022 and December 31, 2021, respectively, is included in other liabilities on the condensed consolidated statements of financial condition.
(2) Includes intangible assets from the acquisition of Griffin Capital's U.S. asset management business during the three months ended June 30, 2022.
(3) Represents a commitment from an institutional investor as part of a strategic transaction.
/
Depreciation
expense was $i7.9 million and $i4.3 million for the three months ended June 30, 2022 and 2021, respectively, and $i13.8
million and $i8.3 million for the six months ended June 30, 2022 and 2021, respectively, and is presented as a component of general, administrative and other expense in the condensed consolidated statements of operations.
9. iLEASES
Apollo
has operating leases for office space, data centers, and certain equipment under various lease agreements.
iThe table below presents operating lease expenses recorded in general, administrative and other in the condensed consolidated statements of operations.
As
of June 30, 2022, the Company’s total lease payments by maturity are presented in the following table:
Operating Lease Payments
Remaining 2022
$
i31,520
2023
i67,434
2024
i67,706
2025
i66,904
2026
i62,337
Thereafter
i519,216
Total
lease payments
$
i815,117
Less imputed interest
(i130,115)
Present
value of lease payments
$
i685,002
/
The Company has undiscounted future operating lease payments of $i34.8
million related to leases that have not commenced that were entered into as of June 30, 2022. Such lease payments are not yet included in the table above or the Company’s condensed consolidated statements of financial condition as lease assets and lease liabilities. These operating leases are anticipated to commence by 2023 with lease terms of approximately i14 years.
Supplemental information related
to leases is as follows:
The Company’s income tax provision totaled $i7.6
million and $i194.1 million for the three months ended June 30, 2022, and 2021, respectively, and $i141.8
million and $i397.3 million for the six months ended June 30, 2022 and 2021, respectively. The Company’s effective tax rate was i4.0%
and i11.4% for the three months ended June 30, 2022 and 2021, respectively, and i8.8%
and i11.6% for the six months ended June 30, 2022 and 2021, respectively.
Under U.S. GAAP, a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The
Company recorded $i15.7 million of unrecognized tax benefits as of June 30, 2022, for uncertain tax positions. Approximately all of the unrecognized tax benefits, if recognized, would affect the effective tax rate. The Company does not anticipate a material change to its unrecognized tax benefits over the next twelve months.
The primary jurisdictions in which the
Company operates and incurs income taxes are the United States and the United Kingdom. There are ino unremitted earnings with respect to the United Kingdom and other foreign jurisdictions.
(dollars in thousands, except share data, except where noted)
In the normal course of business, the Company is subject to examination by federal, state, local and foreign tax authorities. As of June 30, 2022, the Company’s U.S. federal, state, local and foreign income tax returns for the years 2018 through 2020 are open under the general statute of limitations provisions and therefore subject to examination. Currently, the Internal Revenue Service is examining the tax returns of the
Company and certain subsidiaries for the 2019 and 2020 tax years. The State and City of New York are examining certain subsidiaries’ tax returns for tax years 2011 to 2018. The United Kingdom authorities are currently examining certain subsidiaries’ tax returns for tax year 2017. There are other examinations ongoing in other foreign jurisdictions, which the Company operates. No provisions with respect to these examinations have been recorded, other than the unrecognized tax benefits discussed above.
The
Company has historically recorded deferred tax assets as a result of the step-up in the tax basis of assets, including intangibles resulting from exchanges of AOG Units for Class A shares by the Former Managing Partners and Contributing Partners. A related liability has historically been recorded in “Due to Related Parties” in the condensed consolidated statements of financial condition for the expected payments under the tax receivable agreement entered into by and among the Company, the Former Managing Partners, the Contributing Partners, and other parties thereto (as amended, the “tax receivable agreement”) (see note 14). The benefit the Company has historically obtained from the difference in the tax asset recognized and the related liability resulted in an increase to additional
paid in capital. The amortization period for the portion of the increase in tax basis related to intangibles is i15 years. The realization of the remaining portion of the increase in tax basis relates to the disposition of the underlying assets to which the step-up is attributed. The associated deferred tax assets reverse at the time of the corresponding asset disposition.
i
Subsequent
to the Mergers, the Managing Partners and Contributing Partners no longer own AOG Units. Therefore, there were no exchanges subject to the tax receivable agreement during the six months ended June 30, 2022. The table below presents the impact to the deferred tax asset, tax receivable agreement liability and additional paid in capital related to the exchange of AOG Units for Class A shares for the six months ended June 30, 2021.
(1)
Interest rate is calculated as weighted average annualized.
(2) Includes amortization of note discount, as applicable, totaling $i16.9 million and $i25.1
million as of June 30, 2022 and December 31, 2021, respectively. Outstanding balance is presented net of unamortized debt issuance costs.
(3) Fair value is based on obtained broker quotes. These notes are classified as a Level III liability within the fair value hierarchy based on the number and quality of broker quotes obtained, the standard deviations of the observed broker quotes and the percentage deviation from external pricing services. For instances where broker quotes are not available, a discounted cash flow method is used to obtain a fair value.
(4) Fair value is based on obtained broker quotes. These notes are classified as a Level II liability
within the fair value hierarchy based on the number and quality of broker quotes obtained, the standard deviations of the observed broker quotes and the percentage deviation from external pricing services.
(5) Fair value is based on a discounted cash flow method. These notes are classified as a Level III liability within the fair value hierarchy.
(6) There is no outstanding balance as of June 30, 2022. These notes were transferred to a VIE consolidated by Athene during the three months ended March 31, 2022.
/
As
of June 30, 2022, the indentures governing the 2024 Senior Notes, the 2026 Senior Notes, the 2029 Senior Notes, the 2030 Senior Notes, the 2048 Senior Notes and the 2050 Subordinated Notes (the “Indentures”) include covenants that restrict the ability of AMH and, as applicable, the guarantors of the notes under the Indentures to incur indebtedness secured by liens on voting stock or profit participating equity interests of their respective subsidiaries, or merge, consolidate or sell, transfer or lease assets. The Indentures
also provide for customary events of default.
Apollo’s debt obligations contain various customary loan covenants. As of June 30, 2022, the Company was not aware of any instances of non-compliance with the financial covenants contained in the documents governing the Company’s debt obligations.
Credit Facilities
i
The
following table represents the Company’s credit facilities:
The commitment fee on the $i750 million undrawn AMH credit facility as of June 30, 2022 was i0.09%.
/
Borrowings
under the AMH credit facility may be used for working capital and general corporate purposes, including, without limitation, permitted acquisitions. AMH may incur incremental facilities in respect of the credit facility in an aggregate amount not to exceed $i250 million plus additional amounts so long as AMH is in compliance with a net leverage ratio not to exceed i4.00
to 1.00. As of June 30, 2022, there were ino amounts outstanding under the AMH credit facility.
i
The
following table presents the interest expense incurred related to the Company’s debt:
(dollars in thousands,
except share data, except where noted)
12. iEQUITY-BASED COMPENSATION
Under AGM’s Equity Plan, AGM is permitted to grant equity awards representing ownership interest in AGM common stock to employees of AAM. The fair value of all grants is based on the grant date fair value, which considers the public share price of AGM’s common stock subject to certain discounts, as applicable. Equity-based awards granted to employees
and non-employees as compensation are measured based on the grant date fair value of the award. Equity-based awards that do not require future service (i.e., vested awards) are expensed immediately.
AGM grants both service and performance-based awards. The estimated total grant date fair value for service-based awards is charged to compensation expense on a straight-line basis over the vesting period, which is generally one to isix years
from the date of grant. Certain service-based awards are tied to profit sharing arrangements in which a portion of the performance fees distributed to the general partner are required to be used by employees to purchase restricted shares of common stock or RSUs, which are granted under AGM’s Equity Plan. Performance-based awards vest subject to continued employment and AGM’s achievement of specified performance goals. In accordance with U.S. GAAP, equity-based compensation expense for performance grants are typically recognized on an accelerated recognition method over the requisite service period to the extent the performance revenue metrics are met or deemed probable.
For the three months ended June 30, 2022 and June 30, 2021, AAM recorded equity-based compensation expense of $i112.5
million and $i53.0 million, respectively. For the six months ended June 30, 2022 and June 30, 2021, AAM recorded equity-based compensation expense of $i268.8
million and $i109.4 million, respectively. As of June 30, 2022, there was $i773.3
million of estimated unrecognized compensation expense related to unvested RSU awards. This cost is expected to be recognized over a weighted-average period of i3.1 years.
Service-Based Awards
During the six months ended June 30, 2022 and June 30,
2021, AGM awarded service-based grants of i3.4 million RSUs and i2.2
million RSUs with a grant date fair value of $i208.7 million and $i108.6
million, respectively.
During the three months ended June 30, 2022 and June 30, 2021, the Company recorded equity-based compensation expense on service-based awards of $i47.3 million and $i23.4
million, respectively. During the six months ended June 30, 2022 and June 30, 2021, the Company recorded equity-based compensation expense on service-based awards of $i106.1 million and $i42.1
million, respectively.
Performance-Based Awards
During the six months ended June 30, 2022 and June 30, 2021, AGM awarded performance-based grants of i2.6 million and i1.2
million RSUs to certain employees with a grant date fair value of $i147.6 million and $i51.5
million, respectively, which primarily vest subject to continued employment and the Company’s receipt of performance revenues, within prescribed periods, sufficient to cover the associated equity-based compensation.
During the three months ended June 30, 2022 and June 30, 2021, the Company recorded equity-based compensation expense on service-based awards of $i50.2
million and $i17.5 million, respectively. During the six months ended June 30, 2022 and June 30, 2021, the Company recorded equity-based compensation expense on performance-based awards of $i124.0
million and $i43.9 million, respectively.
In December 2021, the Company awarded one-time grants to the Co-Presidents of i6
million RSUs which vest on a cliff basis subject to continued employment over ifive years, with i2 million
of those RSUs also subject to AGM’s achievement of certain fee related earnings and spread related earnings per share metrics. During the three and six months ended June 30, 2022, the Company recorded equity-based compensation expense of $i13.9 million and $i27.8
million, respectively, for service-based awards and $i5.9 million and $i11.8 million, respectively, for
performance-based awards, each related to these one-time grants.
Restricted Stock Awards
During the six months ended June 30, 2022 and June 30, 2021, AGM awarded i0.5 million and i0.1
million restricted stock awards from profit sharing arrangements with a grant date fair value of $i31.5 million and $i3.2
million, respectively.
During the three months ended June 30, 2022 and June 30, 2021, the Company recorded equity-based compensation expense on restricted stock from profit sharing arrangements of $i13.7 million and $i6.9
million, respectively. During the six months ended
(dollars in thousands, except share data, except where noted)
June 30, 2022 and June 30, 2021, the Company recorded equity-based compensation expense on restricted
stock from profit sharing arrangements of $i32.8 million and $i10.9 million, respectively.
13.
iEQUITY
Preferred Stock
The Company has ii11,000,000/
Series A Preferred shares and ii12,000,000/
Series B Preferred shares issued and outstanding as of June 30, 2022.
Dividends on the Preferred shares are discretionary and non-cumulative. During 2022, quarterly cash dividends were $ii0.398438/
per Series A Preferred share and Series B Preferred share.
Subject to certain exceptions, unless dividends have been declared and paid or declared and set apart for payment on the Preferred shares for a quarterly dividend period, during the remainder of that dividend period Apollo may not declare or pay or set apart payment for dividends on any shares of common stock or any other equity securities that the Company may issue in the future ranking as to the payment of dividends, junior to the Preferred shares (“Junior Stock”) and Apollo may not repurchase any Junior Stock.
The Series A Preferred shares and the Series B Preferred shares may be redeemed at Apollo’s option, in whole or in part, at any time on or after March 15, 2022 and March
15, 2023, respectively, at a price of $i25.00 per share, plus declared and unpaid dividends to, but excluding, the redemption date, without payment of any undeclared dividends. Holders of the Preferred shares have no right to require the redemption of the Preferred shares and there is no maturity date.
If a certain change of control event or a certain tax redemption event occurs prior to March 15, 2023 for the Series B Preferred shares, the Series B Preferred shares may be redeemed
at Apollo’s option, in whole but not in part, upon at least i30 days’ notice, within i60 days of the occurrence of such change of control event or such tax redemption event, as applicable, at a price of $i25.25
per share, plus declared and unpaid dividends to, but excluding, the redemption date, without payment of any undeclared dividends. If a certain rating agency event occurs prior to March 15, 2023, the Series B Preferred shares may be redeemed at Apollo’s option, in whole but not in part, upon at least i30 days’ notice, within i60
days of the occurrence of such rating agency event, at a price of $i25.50 per share, plus declared and unpaid dividends to, but excluding, the redemption date, without payment of any undeclared dividends. If (i) a change of control event occurs and (ii) Apollo does not give notice prior to the 31st day following the change of control event to redeem all the outstanding Preferred shares, the dividend rate per annum on the Preferred shares will increase by i5.00%,
beginning on the 31st day following such change of control event.
The Preferred shares are not convertible into common stock and have no voting rights, except in limited circumstances as provided in the Company’s certificate of incorporation.
(dollars
in thousands, except share data, except where noted)
Non-Controlling Interests
i
The table below presents equity interests in Apollo’s consolidated, but not wholly-owned, subsidiaries and funds. Net income and comprehensive income attributable to non-controlling interests consisted of the following:
Net income attributable to non-controlling interests in consolidated entities:
Interest
in management companies and a co-investment vehicle(1)
$
i1,532
$
i1,317
$
i2,890
$
i2,597
Other
consolidated entities
i47,548
i114,959
i256,299
i184,257
Net
income attributable to non-controlling interests in consolidated entities
$
i49,080
$
i116,276
$
i259,189
$
i186,854
Net
income attributable to non-controlling interests in the Apollo Operating Group:
Net income
$
i182,220
$
i1,505,460
$
i1,465,842
$
i3,023,963
Net
income attributable to non-controlling interests in consolidated entities
(i49,080)
(i116,276)
(i259,189)
(i186,854)
Net
income after non-controlling interests in consolidated entities
i133,140
i1,389,184
i1,206,653
i2,837,109
Adjustments:
Income
tax provision(2)
i7,627
i194,051
i141,801
i397,297
NYC
UBT and foreign tax benefit(3)
(i8,871)
(i7,727)
(i17,331)
(i13,481)
Net
income (loss) in non-Apollo Operating Group entities
i3,929
i1,253
i21,431
i4
Series
A Preferred share dividends
(i4,383)
(i4,383)
(i8,766)
(i8,766)
Series
B Preferred share dividends
(i4,782)
(i4,781)
(i9,563)
(i9,562)
Total
adjustments
(i6,480)
i178,413
i127,572
i365,492
Net
income after adjustments
i126,660
i1,567,597
i1,334,225
i3,202,601
Weighted
average ownership percentage of Apollo Operating Group
i42.6
%
i46.6
%
i42.6
%
i46.6
%
Net
income attributable to non-controlling interests in Apollo Operating Group
$
i65,019
$
i731,457
$
i541,564
$
i1,500,492
Net
income attributable to non-controlling interests
$
i114,099
$
i847,733
$
i800,753
$
i1,687,346
Other
comprehensive income (loss) attributable to non-controlling interests
(i26,491)
i3,571
(i33,853)
(i10,193)
Comprehensive
income attributable to non-controlling interests
$
i87,608
$
i851,304
$
i766,900
$
i1,677,153
(1)
Reflects the remaining interest held by certain individuals who receive an allocation of income from certain of the credit funds managed by Apollo.
(2) Reflects all taxes recorded in our condensed consolidated statements of operations. Of this amount, U.S. federal, state, and local corporate income taxes attributable to AAM and its subsidiaries are added back to income of the Apollo Operating Group before calculating non-controlling interests as the income allocable to the Apollo Operating Group is not subject to such taxes.
(3) Reflects New York City Unincorporated Business Tax (“NYC
UBT”) and foreign taxes that are attributable to the Apollo Operating Group and its subsidiaries related to its operations in the U.S. as partnerships and in non-U.S. jurisdictions as corporations. As such, these amounts are considered in the income attributable to the Apollo Operating Group.
/
Redeemable Non-Controlling Interests
As discussed in note 2, redeemable non-controlling interests represent the shares issued by the Company’s consolidated SPACs. iThe
table below presents the activities associated with the redeemable non-controlling interests.
(dollars in thousands, except share data, except where noted)
14. iRELATED PARTY TRANSACTIONS AND INTERESTS IN CONSOLIDATED ENTITIES
Management fees, transaction and advisory fees and
reimbursable expenses from the funds the Company manages and their portfolio companies are included in due from related parties in the condensed consolidated statements of financial condition. The Company also typically facilitates the payment of certain operating costs incurred by the funds that it manages as well as their related parties. These costs are normally reimbursed by such funds and are included in due from related parties. Other related party transactions include loans to employees, periodic sales of ownership interests in Apollo funds to employees, and payables to AGM. iDue
from related parties and due to related parties are comprised of the following:
Due to Former Managing Partners and Contributing Partners(2)
$
i949,974
$
i1,118,272
Due
to parent
i495,114
i—
Due
to funds
i111,827
i104,130
Total
Due to Related Parties
$
i1,556,915
$
i1,222,402
(1)
Includes $i40.5 million and $i47.8 million as of June 30, 2022 and December 31,
2021, respectively, related to a receivable from a fund in connection with the Company’s sale of a platform investment to such fund. The amount is payable to the Company over five years and is held at fair value.
(2) Includes $i438.2 million and $i569.6 million
as of June 30, 2022 and December 31, 2021, respectively, related to the purchase of limited partnership interests, payable in equal installments through December 31, 2024.
Tax Receivable Agreement
On January 1, 2022, Apollo acquired Athene and merged operations into a newly established HoldCo, later renamed Apollo Global Management, Inc. Pursuant to the Merger Agreement executed by AGM, the Former Managing Partners and Contributing Partners, all AOG Units beneficially owned by each holder of AOG Units were converted to shares of AGM common stock following the consummation of the Merger.
Prior to the Mergers, each of
the Former Managing Partners and Contributing Partners had the right to exchange vested AOG Units for Class A shares, subject to certain restrictions. All Apollo Operating Group entities have made, or will make, an election under Section 754 of the U.S. Internal Revenue Code, which will result in an adjustment to the tax basis of the assets owned by the Apollo Operating Group entities at the time an exchange was made. The election results in an increase to the tax basis of underlying assets which will reduce the amount of gain and associated tax that the Company and its subsidiaries will otherwise be required to pay in the future.
The tax receivable agreement (“TRA”) provides for payment to the Former Managing Partners and Contributing Partners
of i85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income taxes that Apollo realizes as a result of the increases in tax basis of assets that resulted from transactions and other exchanges of AOG Units for Class A shares that occurred in prior years. AGM and its subsidiaries retain the benefit from the remaining i15%
of actual cash tax savings. In May 2022, Apollo waived its early termination right, which had provided it the right to early terminate the tax receivable agreement at any time by payment of an early termination payment to all holders. If the Company does not make the required annual payment on a timely basis as outlined in the TRA, interest is accrued on the balance until the payment date.
Following the closing of the Mergers, the Former Managing Partners and Contributing Partners no longer own AOG Units. Therefore, there were no exchanges subject to the TRA during the six months ended June 30, 2022.
(dollars in thousands, except share data, except where noted)
As a result of the exchanges of AOG Units for Class A Shares during the six months ended June 30, 2021, a $i38.2
million liability was recorded to estimate the amount of the future payments to be made by the Company and its subsidiaries to the Former Managing Partners and Contributing Partners pursuant to the TRA.
AOG Unit Payment
On December 31, 2021, holders of AOG Units (other than Athene and the Company) sold and transferred a portion of such AOG Units to APO Corp., a wholly-owned consolidated subsidiary of the Company, in exchange for an amount equal to $i3.66
multiplied by the total number of AOG Units held by such holders immediately prior to such transaction (such payment, the “AOG Unit Payment”). The remainder of the AOG Units held by such holders were exchanged for shares of AGM common stock concurrently with the consummation of the Mergers on January 1, 2022.
As of June 30, 2022, the outstanding payable amount to Former Managing Partners and Contributing Partners was $i438.2
million, which is payable in equal installments through December 31, 2024.
Due from Employees and Former Employees
As of June 30, 2022 and December 31, 2021, due from employees and former employees includes various amounts due to the Company including employee loans and return of profit sharing distributions. As of June 30, 2022 and December 31, 2021, the balance included interest-bearing employee loans receivable of $i20.0
million and $i17.5 million respectively. The outstanding principal amount of the loans as well as all accrued and unpaid interest is required to be repaid at the earlier of the eighth anniversary of the date of the relevant loan or at the date of the relevant employee’s resignation from the Company.
The Company recorded a receivable from
certain employees and former employees for the potential return of profit sharing distributions that would be due if certain funds were liquidated as of June 30, 2022 and December 31, 2021 of $i62.8 million and $i64.5
million, respectively.
Indemnity
Performance revenues from certain funds can be distributed to the Company on a current basis, but are subject to repayment by the subsidiaries of the Apollo Operating Group that act as general partners of the funds in the event that certain specified return thresholds are not ultimately achieved. The Former Managing Partners, Contributing Partners and certain other investment professionals have personally guaranteed, subject to certain limitations, the obligations of these subsidiaries in respect of this general partner obligation. Such guarantees are several and not joint and are
limited to a particular Former Managing Partners’ or Contributing Partner’s distributions. The Company has agreed to indemnify each of the Company’s Former Managing Partners and certain Contributing Partners against all amounts that they pay pursuant to any of these personal guarantees in favor of certain funds that the Company manages (including costs and expenses related to investigating the basis for or objecting to any claims made in respect of the guarantees) for all interests that the Company’s Former Managing Partners and Contributing Partners contributed or sold to the Apollo Operating Group.
The
Company recorded an indemnification liability in respect of this indemnification obligation of $i13.4 million and $i13.2 million as of June 30, 2022 and December 31,
2021, respectively.
Due to Funds
Based upon an assumed liquidation of certain of the funds the Company manages, the Company has recorded a general partner obligation to return previously distributed performance allocations, which represents amounts due to these funds. The general partner obligation is recognized based upon an assumed liquidation of a fund’s net assets as of the reporting date. The actual determination and any required payment of any such general partner obligation would not take place until the final disposition of a fund’s investments based on the contractual termination of the fund or as otherwise set forth in the respective governing document of the fund.
The
Company recorded general partner obligations to return previously distributed performance allocations related to certain funds of $i81.4 million and $i81.2 million as of June 30,
2022 and December 31, 2021, respectively.
Athene Fee Arrangement
The Company provides asset management and advisory services to Athene, including asset allocation services, direct asset management services, asset and liability matching management, mergers and acquisitions, asset diligence hedging and other
(dollars in thousands, except share data, except where noted)
asset management services. On March 31, 2022, Athene and Apollo agreed to revise the existing fee arrangements (the “amended fee agreement”) between Athene and Apollo. The Company began recording fees pursuant to the amended fee agreement on January 1, 2022. The amended fee agreement provides for sub-allocation fees which vary based on portfolio allocation differentiation, as described below.
i
The
amended fee agreement provides for a monthly fee to be payable by Athene to the Company in arrears, with retroactive effect to the month beginning on January 1, 2022, in an amount equal to the following, to the extent not otherwise payable to the Company pursuant to any one or more investment management or sub-advisory agreements or arrangements:
(i) The Company, through its consolidated subsidiary Apollo Insurance Solutions Group LP, or ISG, earns a base management fee of i0.225%
per year on the aggregate book value of substantially all of the assets in substantially all of the accounts of or relating to Athene (collectively, the “Athene Accounts”) up to $i103.4 billion (the “Backbook Value”) and i0.150% per year on all assets in excess
of $i103.4 billion (the “Incremental Value”), respectively; plus
(ii) with respect to each asset in an Athene Account, subject to certain exceptions, that is managed by the Company and that belongs to a specified asset class tier (“core,”“core plus,”“yield,” and “high alpha”), a sub-allocation fee as follows:
(1)Core assets include public investment grade corporate bonds, municipal securities, agency residential or commercial mortgage backed securities and obligations of any governmental agency or government sponsored entity that is not expressly backed by the U.S. government.
(2)Core plus assets
include private investment grade corporate bonds, fixed rate first lien commercial mortgage loans and obligations issued or assumed by a financial institution (such an institution, a “financial issuer”) and determined by Apollo to be “Tier 2 Capital” under the Basel III recommendations developed by the Basel Committee on Banking Supervision (or any successor to such recommendations).
(3)Yield assets include non-agency residential mortgage-backed securities, investment grade collateralized loan obligations, certain asset-backed securities, commercial mortgage-backed securities, emerging market investments, below investment grade corporate bonds, subordinated debt obligations, hybrid securities or surplus notes issued or assumed by a financial issuer, as rated preferred equity, residential mortgage loans, bank loans, investment grade infrastructure debt and certain floating rate commercial
mortgage loans.
(4)High alpha assets include subordinated commercial mortgage loans, below investment grade collateralized loan obligations, unrated preferred equity, debt obligations originated by MidCap, below investment grade infrastructure debt, certain loans originated directly by Apollo and agency mortgage derivatives.
(5)Other Assets include cash, treasuries, equities and alternatives. With respect to equities and alternatives, Apollo earns performance revenues of i0%
to i20%.
/
Merger Agreement
On March 8, 2021, the Company entered into the Merger Agreement with AHL, HoldCo, AHL Merger Sub, and AAM Merger Sub.
On January 1, 2022, Apollo and Athene completed the previously announced Mergers. Following the closing of the Mergers, all of the common stock of AAM and AHL are owned by AGM and both AAM and AHL became consolidated subsidiaries
of AGM. Subsequent to the closing of the Mergers, the Company distributed its interest in AHL’s Class A common shares to AGM.
Subsequent to the closing of the Mergers, the Company transferred the 2039 Senior Secured Guaranteed Notes to a VIE consolidated by Athene. Similarly, certain of Apollo’s general partner fund co-investments were transferred to Athene, which were subsequently transferred to a fund managed by Apollo and including third-party capital.
(dollars in thousands, except share data, except where noted)
Athora
The Company, through ISGI, provides investment advisory services to certain portfolio companies of funds managed by Apollo and Athora, a strategic platform that acquires or reinsures blocks of insurance business in the European life insurance market (collectively, the “Athora Accounts”). The Company had equity commitments outstanding of up to $i429.8
million as of June 30, 2022, subject to certain conditions.
Athora Sub-Advised
The Company, through ISGI, provides sub-advisory services with respect to a portion of the assets in certain portfolio companies of Apollo funds and the Athora Accounts. The Company broadly refers to “Athora Sub-Advised” assets as those assets in the Athora Accounts which the Company explicitly sub-advises as well as those assets in the Athora Accounts which are invested directly in funds and investment vehicles Apollo manages.
The
Company earns a base management fee on the aggregate market value of substantially all of the investment accounts of or relating to Athora and also a sub-advisory fee on the Athora Sub-Advised assets, which varies depending on the specific asset class.
On December 15, 2021, the Company executed an amended and restated fee agreement with Athora. The new fee agreement revised the base fee paid to the Company for managing certain assets on behalf of Athora and removed Athora’s previous reimbursement of certain costs incurred by Apollo. These changes had retroactive effect to January 1, 2021.
The following table
presents the revenues earned in aggregate from Athene and Athora:
Revenues
earned in aggregate from Athene and Athora, net(1)
$
i291,812
$
i275,768
$
i617,373
$
i543,791
(1) Consisting
of management fees, sub-advisory fees, and performance revenues from Athene and Athora, as applicable.
Regulated Entities and Affiliated Service Providers
Apollo Global Securities, LLC (“AGS”)is a registered broker dealer with the SEC and is a member of the Financial Industry Regulatory Authority, subject to the minimum net capital requirements of the SEC. AGS was in compliance with these requirements at June 30, 2022. From time to time, AGS, as well as other Apollo affiliates provide services to related parties of Apollo, including Apollo funds and their portfolio companies, whereby the Company or its affiliates earn fees for providing such services.
Griffin
Capital Securities, LLC (“GCS”) is a registered broker dealer with the SEC and is a member of the Financial Industry Regulatory Authority, subject to the minimum net capital requirements of the SEC. GCS was in compliance with these requirements as of June 30, 2022.
Due to parent
Following the merger with Athene, the Company has a revolving loan agreement with AGM, its parent company, to manage cash balances and to fund liquidity for general corporate use. The balance outstanding on this loan to AGM was $i495.1 million
as of June 30, 2022.
Investment in SPACs
In October 2020, APSG I, a SPAC, completed an initial public offering, ultimately raising total gross proceeds of $i816.8 million, including the underwriters’ subsequent partial exercise of their over-allotment option. In a private placement concurrent with the initial public offering, APSG I sold warrants to APSG Sponsor, L.P., a subsidiary of Apollo,
for total gross proceeds of $i18.3 million. APSG Sponsor, L.P. previously held Class B ordinary shares of APSG I. In May 2022, APSG I completed a business combination with American Express Global Business Travel. As a result of the business combination, Apollo no longer consolidates APSG I as a VIE. The deconsolidation resulted in an unrealized gain of $i162.0 million,
which includes $i81.5 million of unrealized gains related to previously held Class B ordinary shares, which converted to Class A shares of the newly merged entity (“GBTG”), for the three months ended June 30, 2022 and is presented in Net gains from investment
(dollars in thousands, except share data, except where noted)
activities within Other income in the condensed consolidated statements of operations. Apollo continues to hold a non-controlling interest in GBTG at fair value, presented within Investments in the condensed consolidated statements of financial condition. Apollo has significant influence in the retained investment, and has elected the fair value option for subsequent measurement.
On February 12, 2021, APSG II, a SPAC, completed an initial public offering, raising total gross proceeds of
$i690.0 million, including the underwriters’ exercise in full of their over-allotment option. In a private placement concurrent with the initial public offering, APSG II sold warrants to APSG Sponsor II, L.P., a subsidiary of Apollo, for total gross proceeds of $i15.6 million.
APSG Sponsor II, L.P. also holds Class B ordinary shares of APSG II. Apollo currently consolidates APSG II as a VIE, and thus all private placement warrants and Class B ordinary shares are eliminated in consolidation.
On July 13, 2021, Acropolis, a SPAC, completed an initial public offering, ultimately raising total gross proceeds of $i345.0 million, including the underwriters’ subsequent exercise in full of their over-allotment option.
In a private placement concurrent with the initial public offering, Acropolis sold warrants to Acropolis Infrastructure Acquisition Sponsor, L.P., a subsidiary of Apollo, for total gross proceeds of $i8.8 million. Acropolis Infrastructure Acquisition Sponsor, L.P. also holds Class B common stock of Acropolis. Apollo currently consolidates Acropolis as a VIE, and thus all private placement warrants and Class B common stock are eliminated in consolidation.
As described in note 2, the
Company consolidates entities that are VIEs for which the Company has been designated as the primary beneficiary. Through its interests in the respective sponsors, the Company has the power to direct the activities that most significantly impact the economic performance of these SPACs. In addition, the Company’s combined interests in these VIEs are significant. Assets and liabilities of the consolidated SPACs are shown within the respective line items of the condensed consolidated financial statements, as outlined below.
i
The
tables below present the financial information of these SPACs in aggregate:
Net
Income Attributable to Apollo Asset Management, Inc.
i13,882
(i3,118)
i12,595
(i11,011)
15.
iCOMMITMENTS AND CONTINGENCIES
Investment Commitments
As a limited partner, general partner and manager of the Apollo funds, Apollo had unfunded capital commitments as of June 30, 2022 and December 31, 2021 of $i0.6
billion and $i1.0 billion, respectively.
Litigation and Contingencies
Apollo is, from time to time, party to various legal actions arising in the ordinary course of business including claims and lawsuits, reviews, investigations or proceedings by governmental and self-regulatory agencies regarding its business.
On August 3, 2017, a complaint was filed in the United States District Court for the Middle District
of Florida against AAM, a senior partner of Apollo and a former principal of Apollo by Michael McEvoy on behalf of a purported class of employees of subsidiaries of CEVA Group, LLC (“CEVA Group”) who purchased shares in CEVA Investment Limited (“CIL”), the former parent company of CEVA Group. The complaint alleged that the defendants breached fiduciary duties to and defrauded the plaintiffs by inducing them to purchase shares in CIL and subsequently participating in a debt restructuring of CEVA Group in which shareholders of CIL did not receive a recovery. McEvoy subsequently revised his complaint to attempt to assert claims that do not belong to CIL. The amended complaint no longer named any individual defendants, but Apollo Management VI, L.P. and CEVA Group were added as defendants. The amended complaint sought damages of approximately €i30 million
and asserts, among other things, claims for violations of the Investment Advisers Act of 1940, breach of fiduciary duties, and breach of contract. On December 7, 2018, McEvoy filed his amended complaint in the District Court for the Middle District of Florida. On January 6, 2020, the Florida court granted in part Apollo’s motion to dismiss, dismissing McEvoy’s Investment Advisers Act claim with prejudice, and denying without prejudice Apollo’s motion with respect to the remaining claims, and directing the parties to conduct limited discovery, and submit new briefing, solely with respect to the statute of limitations. On July 30, 2020, Apollo and CEVA filed a joint motion for summary judgment on statute of limitations grounds. On
June 29, 2021, the district court issued a decision denying the defendants’ joint motion for summary judgment on statute of limitations grounds, and set deadlines on July 23, 2021 for the plaintiff to file an amended complaint and August 20, 2021 for defendants to answer or move to dismiss the amended complaint. Plaintiff filed his second amended complaint on July 23, 2021 which added alleged grounds for tolling the statute of limitations. Also on July 23, 2021, the defendants filed a joint motion for reconsideration with respect to aspects of the district court’s June 29, 2021 decision. On March 10, 2022, the court granted
defendants’ motion for reconsideration and granted Apollo’s motion for summary judgment. On April 7, 2022, Plaintiff filed a motion to alter or amend the court’s order of March 10. The defendants, including Apollo, opposed that motion on April 28, 2022. The court denied Plaintiff’s motion on May 26, 2022. Plaintiff has appealed the court’s decisions to the Eleventh Circuit. Apollo believes that Plaintiff’s appeal is without merit. No reasonable estimate of possible loss, if any, can be made at this time.
On December 21, 2017, several entities referred to collectively as “Harbinger” commenced an action in New York Supreme Court captioned Harbinger Capital Partners II LP et al. v. Apollo Global Management
LLC, et al. (No. 657515/2017). The complaint named as defendants AAM, and funds managed by Apollo that invested in SkyTerra Communications, Inc. (“SkyTerra”), among others. The complaint alleged that during the period of Harbinger’s various equity and debt investments in SkyTerra from 2004 to 2010, the defendants concealed from Harbinger material defects in SkyTerra technology. The complaint further alleged that Harbinger would not have made investments in SkyTerra totaling approximately $i1.9 billion had it known
(dollars in thousands, except share data, except where noted)
of the defects, and that the public disclosure of these defects ultimately led to SkyTerra filing for bankruptcy in 2012 (after it had been renamed LightSquared). The complaint sought $i1.9 billion
in damages, as well as punitive damages, interest, costs, and fees. On June 12, 2019, Harbinger voluntarily discontinued the state action without prejudice. On June 8, 2020, Harbinger refiled its litigation in New York Supreme Court, captioned Harbinger Capital Partners II, LP et al. v. Apollo Global Management, LLC et al. (No. 652342/2020). The complaint adds ieight new defendants and ithree
new claims relating to Harbinger’s contention that the new defendants induced Harbinger to buy CCTV One Four Holdings, LLC (“CCTV”) to support SkyTerra’s network even though they allegedly knew that the network had material defects. On November 23, 2020, Defendants refiled a bankruptcy motion, and on November 24, 2020, filed in the state court a motion to stay the state court proceedings pending a ruling by the bankruptcy court on the bankruptcy motion. On February 1, 2021, the bankruptcy court denied the bankruptcy motion. On March 31, 2021, Defendants filed their motions to dismiss the New York Supreme Court action. Hearings were held on the motions to dismiss on February 15, 2022 and February
18, 2022, and the motions remain pending. Apollo believes the claims in this action are without merit. Because this action is in the early stages, no reasonable estimate of possible loss, if any, can be made at this time.
On November 1, 2019, plaintiff Benjamin Fongers filed a putative class action in Illinois Circuit Court, Cook County, against CareerBuilder, LLC (“CareerBuilder”) and AAM. Plaintiff alleges that in March 2019, CareerBuilder changed its compensation plan so that sales representatives such as Fongers would (i) receive reduced commissions; and (ii) only be able to receive commissions for accounts they originated that were not reassigned to anyone else, a departure from the earlier plan. Plaintiff also claims that the plan applied retroactively to deprive sales representatives of commissions to which they were earlier entitled. Plaintiff alleges that
AAM exercises complete control over CareerBuilder and thus, CareerBuilder acts as AAM’s agent. Based on these allegations, Plaintiff alleges claims against both defendants for breach of written contract, breach of implied contract, unjust enrichment, violation of the Illinois Sales Representative Act, and violation of the Illinois Wage and Payment Collection Act. The defendants removed the action to the Northern District of Illinois on December 5, 2019, and Plaintiff moved to remand on January 6, 2020. On October 21, 2020, the district court granted the motion to remand. On January 11, 2021,
the district court ordered the clerk of court to take the necessary steps to transfer the case back to Illinois Circuit Court, Cook County. On March 8, 2021, Plaintiff filed a motion under 28 U.S.C. § 1447(c) to recover attorneys’ fees of approximately $i35,000 for the remand briefing. Defendants filed their opposition on March 31, 2021, and Plaintiff replied on April 14, 2021. Defendants filed motions
to dismiss the complaint in the Illinois Circuit Court, Cook County on June 11, which were fully briefed on August 13, 2021. CareerBuilder has also filed a Motion for a Protective Order and to Stay Discovery pending the outcome of the motions to dismiss. On February 7, 2022, the court held a hearing on the motions to dismiss and the request to stay discovery. At the hearing, the court took the motions to dismiss under advisement and granted CareerBuilder’s motion to stay discovery. On March 11, 2022, the parties filed a Notice of Settlement notifying the court that the parties have reached an agreement in principle to resolve the case in full, and the court has granted preliminary approval of the settlement. The final approval hearing for the settlement is scheduled for November
17, 2022.
In March 2020, Frank Funds, which claims to be a former shareholder of MPM Holdings, Inc. (“MPM”), commenced an action in the Delaware Court of Chancery, captioned Frank Funds v. Apollo Global Management, Inc., et al., C.A. No. 2020-0130, against AAM, certain former MPM directors (including ithree Apollo officers and employees), and members of the consortium that acquired MPM in a May 2019 merger. The complaint asserts, on behalf
of a putative class of former MPM shareholders, a claim against Apollo for breach of its fiduciary duties as MPM’s alleged controlling shareholder in connection with the May 2019 merger. Frank Funds seeks unspecified compensatory damages. On July 23, 2019, a group of former MPM shareholders filed an appraisal petition in Delaware Chancery Court seeking the fair value of their MPM shares that were purchased through MPM’s May 15, 2019 merger, in an action captioned In re Appraisal of MPM Holdings, Inc., C.A. No. 2019-0519 (Del. Ch.). On June 3, 2020, petitioners moved for leave to file a verified amended appraisal petition and class-action complaint that included claims for breach of fiduciary duty and/or aiding and abetting breaches of fiduciary duty against AAM, the Apollo-affiliated
fund that owned MPM’s shares before the merger, certain former MPM directors (including three Apollo employees), and members of the consortium that acquired MPM, based on alleged actions related to the May 2019 merger. The petitioners also sought to consolidate their appraisal proceeding with the Frank Funds action. On November 13, 2020, the Chancery Court granted the parties’ stipulated order to consolidate the two matters, and on December 21, 2020, the Chancery Court granted petitioners’ motion for leave to file the proposed amended complaint. This new consolidated action is captioned In Re MPM Holdings Inc. Appraisal and Stockholder Litigation, C.A. No. 2019-0519 (Del Ch.). On January 13, 2022, the Chancery Court denied Apollo’s motion to dismiss. Apollo believes the claims
in this action are without merit. Because this action is in the early stages, no reasonable estimate of possible loss, if any, can be made at this time.
On May 29, 2020, plaintiff Vrajeshkumar Patel filed a putative stockholder derivative and class action complaint in the Delaware Court of Chancery against Talos Energy, Inc. (“Talos”), all of the members of Talos’s board of directors (including
(dollars in thousands, except share data, except where noted)
itwo Apollo partners), Riverstone Holdings, LLC (“Riverstone”), AAM, and Guggenheim Securities, LLC in connection with the acquisition of certain assets from Castex Energy 2014, LLC and ILX Holdings, LLC in February 2020. The complaint asserts direct and derivative claims against Apollo, Riverstone, and the individual defendants for breach of their fiduciary duties. The plaintiff
alleges that Apollo and Riverstone comprise a controlling shareholder group. The complaint seeks, among other relief, class certification and unspecified money damages. On August 4, 2020, the defendants filed motions to dismiss. On May 17, 2021, the court ordered that the Riverstone funds and Apollo funds that hold the relevant Talos stock be joined as necessary parties. The parties filed a stipulation, which was entered by the court on June 7, 2021, adding Riverstone Talos Energy Equityco LLC, Riverstone Talos Energy Debtco LLC, Apollo Talos Holdings, L.P., and AP Talos Energy Debtco LLC as defendants in the action. On September 30, 2021, the court dismissed the complaint in its entirety against all defendants. Plaintiff filed an appeal of this decision, which was dismissed
by the Delaware Supreme Court.
On August 4, 2020, a putative class action complaint was filed in the United States District Court for the District of Nevada against PlayAGS Inc. (“PlayAGS”), all of the members of PlayAGS’s board of directors (including three directors who are affiliated with Apollo), certain underwriters of PlayAGS (including Apollo Global Securities, LLC), as well as AAM, Apollo Investment Fund VIII, L.P., Apollo Gaming Holdings, L.P., and Apollo Gaming Voteco, LLC (these last four parties, together, the “Apollo Defendants”). The complaint asserts claims against all defendants arising under the Securities Act of 1933 in connection with certain secondary offerings of PlayAGS stock conducted in August 2018 and March 2019, alleging that the registration statements issued in connection with those offerings did not fully disclose certain business
challenges facing PlayAGS. The complaint further asserts a control person claim under Section 20(a) of the Exchange Act against the Apollo Defendants and the director defendants (including the directors affiliated with Apollo), alleging such defendants were responsible for certain misstatements and omissions by PlayAGS about its business . Plaintiffs filed amended complaints on January 11, 2021 and again on March 25, 2021. On May 24, 2021, the Apollo Defendants filed a motion to dismiss the complaint, which motion remains pending. Apollo believes the claims in this action are without merit. Because this action is in the early stages, no reasonable estimate of possible loss, if any, can be made at this time.
On or around October 19,
2021, a purported stockholder of AAM filed a complaint against AAM in the Court of Chancery of the State of Delaware seeking the disclosure of certain additional documents pursuant to Section 220 of the Delaware General Corporation Law. The complaint alleges that the stockholder seeks to investigate (a) whether wrongdoing or mismanagement occurred in connection with the decision of the AAM board of directors to pay, in connection with the elimination of the AAM Up-C structure, the partners of AP Professional Holdings, L.P. (including the Former Managing Partners) a payment of cash equal to $i3.66
per AOG Unit held, which the complaint characterizes as providing $i640 million for “Tax Receivable Agreement” assets (which the stockholder alleges are worth nothing); (b) the independence and disinterestedness of AAM directors and/or officers; and (c) potential damages relating thereto. No reasonable estimate of possible loss, if any, can be made at this time because the plaintiff is not seeking any monetary damages in connection with this action.
Commitments and Contingencies
Other
long-term obligations relate to payments with respect to certain consulting agreements entered into by Apollo Investment Consulting LLC, a subsidiary of Apollo, as well as long-term service contracts. A significant portion of these costs are reimbursable by funds or portfolio companies. iAs of June 30, 2022, fixed and determinable payments due in connection with these obligations were as follows:
Remaining
2022
2023 - 2024
2025 - 2026
2027 and Thereafter
Total
Other long-term obligations
$
i20,198
$
i5,141
$
i249
$
i—
$
i25,588
Contingent
Obligations
Performance allocations with respect to certain funds are subject to reversal in the event of future losses to the extent of the cumulative revenues recognized in income to date. If all of the existing investments became worthless, the amount of cumulative revenues that have been recognized by Apollo through June 30, 2022 and that would be reversed approximates $i4.3 billion. Management views the
possibility of all of the investments becoming worthless as remote. Performance allocations are affected by changes in the fair values of the underlying investments in the funds that Apollo manages. Valuations, on an unrealized basis, can be significantly affected by a variety of external factors including, but not limited to, bond yields and industry trading multiples. Movements in these items can affect valuations quarter to quarter even if the underlying business fundamentals remain stable.
(dollars in thousands, except share data, except where noted)
Additionally, at the end of the life of certain funds that the Company manages, there could be a payment due to a fund by the Company if the Company, as general partner, has received more performance allocations than was ultimately earned. The general partner obligation amount, if any, will depend on final realized values of investments at the end of the life of each fund or as otherwise set forth in the respective limited partnership agreement of the fund. See note 14 to our condensed consolidated financial statements for further details regarding
the general partner obligation.
Certain funds may not generate performance allocations as a result of unrealized and realized losses that are recognized in the current and prior reporting period. In certain cases, performance allocations will not be generated until additional unrealized and realized gains occur. Any appreciation would first cover the deductions for invested capital, unreturned organizational expenses, operating expenses, management fees and priority returns based on the terms of the respective fund agreements.
iOne
of the Company’s subsidiaries, AGS, provides underwriting commitments in connection with securities offerings of related parties of Apollo, including portfolio companies of the funds Apollo manages, as well as third parties. As of June 30, 2022 and December 31, 2021, there were iino/
open underwriting commitments.
The Company and Athene, together with a third-party institutional investor, have committed to provide financing to a consolidated VIE that invests across Apollo’s capital markets platform (such VIE, the “Apollo Capital Markets Partnership”). Pursuant to these arrangements, the Company and Athene have committed equity financing to the Apollo Capital Markets Partnership. The Apollo Capital Markets Partnership also has a revolving credit facility with Sumitomo Mitsui Banking Corporation, as lead arranger, administrative agent and letter of credit issuer, Mizuho Bank Ltd., and other lenders party thereto, pursuant to which it may borrow up to $i2.25 billion.
The revolving credit facility, which has a final maturity date of April 1, 2025, is non-recourse to the Company and Athene, except that the Company and Athene provided customary comfort letters with respect to their capital contributions to the Apollo Capital Markets Partnership. As of June 30, 2022, the Apollo Capital Markets Partnership had funded commitments of $i403 million
to transactions across Apollo’s capital markets platform, all of which were funded through the revolving credit facility, and no capital had been funded by the Company or Athene to the Apollo Capital Markets Partnership pursuant to their commitments.
Whether the commitments of the Apollo Capital Markets Partnership are actually funded, in whole or in part, depends on the contractual terms of such commitments, including the satisfaction or waiver of any conditions to closing or funding. It is expected that between the time the Apollo Capital Markets Partnership makes a commitment and funding of such commitment, efforts will be made to syndicate such commitment to, among others, third parties, which should reduce its risk when committing to certain transactions. The Apollo Capital Markets Partnership may also, with respect to a particular
transaction, enter into other arrangements with third parties which reduce its commitment risk.
Contingent Consideration
In connection with the acquisition of Stone Tower in April 2012, the Company agreed to pay the former owners of Stone Tower a specified percentage of any future performance revenues earned from certain of the Stone Tower funds, CLOs, and strategic investment accounts. This contingent consideration liability was determined based on the present value of estimated future performance revenue payments, and is recorded in profit sharing payable in the condensed consolidated statements of financial condition. The fair value of the remaining contingent obligation was $i104.2
million and $i125.9 million as of June 30, 2022 and December 31, 2021, respectively.
The contingent consideration obligations will be remeasured to fair value at each reporting period until the obligations are satisfied and are characterized as Level III liabilities. The changes in the fair value of the contingent consideration obligations is reflected in profit sharing expense in the condensed consolidated statements of operations.
See note 7 for further information regarding fair value measurements.
16. iSEGMENT REPORTING
Apollo conducts its business primarily in the United States through itwo
reportable segments: (i) asset management and (ii) principal investing. Segment information is utilized by our chief operating decision makers to assess performance and to allocate resources.
The performance is measured by the Company’s chief operating decision makers on an unconsolidated basis because management makes operating decisions and assesses the performance of each of Apollo’s business segments based on financial and operating metrics and data that exclude the effects of consolidation of any of the affiliated funds.
(dollars in thousands, except share data, except where noted)
Segment Reporting Changes
In connection with the completion of the Mergers, Apollo undertook a strategic review of its operating structure and business segments to assess the performance of its businesses and the allocation of resources. As a result, for periods following the Mergers, Apollo reports results through itwo
reportable segments called asset management and principal investing.
In connection with these changes, all prior periods have been recast to conform to the new presentation. Consequently, this information will be different from the historical segment financial results previously reported by Apollo in its reports filed with the SEC.
Adjusted Segment Income
Adjusted Segment Income is the key performance measure used by management in evaluating the performance of the asset management and principal investing segments. Management uses Adjusted Segment Income to make key operating decisions such as the following:
•decisions relatedto the allocation of resources such as staffing decisions including hiring and locations for deployment
of the new hires;
•decisionsrelated to capital deployment such as providing capital to facilitate growth for the business and/or to facilitate expansion into new businesses;
•decisions related to expenses, such as determining annual discretionary bonuses and compensation to employees. With respect to compensation, management seeks to align the interests of certain professionals and selected other individuals with those of the investors in the funds and those of Apollo’s stockholders by providing such individuals a profit sharing interest in the performance fees earned in relation to the funds. To achieve that objective, a certain amount of compensation is based on Apollo’s performance and growth for the year.
Adjusted Segment Income is a measure
of profitability and has certain limitations in that it does not take into account certain items included under U.S. GAAP. Adjusted Segment Income represents the amount of Apollo’s net realized earnings, excluding the effects of the consolidation of any of the related funds and SPACs, interest and preferred dividends paid to Preferred shareholders, taxes and related payables, transaction-related charges and any acquisitions. Transaction-related charges includes equity-based compensation charges, the amortization of intangible assets, contingent consideration, and certain other charges associated with acquisitions, and restructuring charges. In addition, Adjusted Segment Income excludes non-cash revenue and expense related to equity awards granted by unconsolidated related parties to employees of the Company, compensation and administrative related expense reimbursements, as well as
the assets, liabilities and operating results of the funds and variable interest entities that are included in the condensed consolidated financial statements. Adjusted Segment Income also excludes impacts of the remeasurement of the tax receivable agreement liability recorded in other income, which arises from changes in the associated deferred tax balance.
Adjusted Segment Income may not be comparable to similarly titled measures used by other companies and is not a measure of performance calculated in accordance with U.S. GAAP. We use Adjusted Segment Income as a measure of operating performance, not as a measure of liquidity. Adjusted Segment Income should not be considered in isolation or as a substitute for net income or other income data prepared in accordance with U.S. GAAP. The use of Adjusted Segment Income without consideration of related U.S. GAAP measures is not adequate due to the adjustments described above.
Management compensates for these limitations by using Adjusted Segment Income as a supplemental measure to U.S. GAAP results, to provide a more complete understanding of our performance as management measures it. A reconciliation of Adjusted Segment Income to its most directly comparable U.S. GAAP measure of income (loss) before income tax provision can be found in this footnote.
Fee Related Earnings
Fee Related Earnings (“FRE”) is a component of Adjusted Segment Income that is used to assess the performance of the asset management segment. FRE is the sum of (i) management fees, (ii) advisory and transaction fees, (iii) fee-related performance fees from indefinite term vehicles, that are measured and received on a recurring basis and not dependent on realization events of the underlying investments and (iv) other income, net, less (a) fee-related compensation, excluding equity-based
(dollars in thousands, except share data, except where noted)
compensation, (b) non-compensation expenses incurred in the normal course of business, (c) placement fees and (d) non-controlling interests in the management companies of certain funds the Company manages.
Principal
Investing Income
Principal Investing Income (“PII”)is a component of Adjusted Segment Income that is used to assess the performance of the principal investing segment. For the principal investing segment, PII is the sum of (i) realized performance fees, excluding realizations received in the form of shares, (ii) realized investment income, less (x) realized principal investing compensation expense, excluding expense related to equity-based compensation, and (y) certain corporate compensation and non-compensation expenses.
i
The
following tables present financial data for the Company’s reportable segments.
(dollars in thousands, except share data, except where noted)
i
The
following table presents the reconciliation of income before income tax provision reported in the condensed consolidated statements of operations to Adjusted Segment Income:
Merger-related
transaction and integration costs(3)
i18,741
i12,915
i36,487
i23,684
(Gain)
loss from change in tax receivable agreement liability
i—
i—
i14,184
(i1,941)
Net
income attributable to non-controlling interests in consolidated entities
(i49,080)
(i116,276)
(i259,189)
(i186,854)
Unrealized
performance fees
i487,524
(i279,750)
i42,881
(i1,570,249)
Unrealized
profit sharing expense
(i188,553)
i98,141
i2,700
i687,133
Net
interest expense
i26,471
i33,961
i56,771
i67,813
Unrealized
principal investment income (loss)
(i71,832)
(i8,620)
i10,296
(i372,393)
Unrealized
net (gains) losses from investment activities and other
(i147,605)
(i913,885)
(i684,313)
(i1,239,950)
Adjusted
Segment Income
$
i367,858
$
i591,137
$
i1,082,487
$
i953,998
(1)
Equity-based profit sharing expense and other includes certain profit sharing arrangements in which a portion of performance fees distributed to the general partner are required to be used by employees of Apollo to purchase restricted shares of common stock or RSUs, which are granted under AGM’s Equity Plan. Equity-based profit sharing expense and other also includes performance grants which are tied to the Company’s receipt of performance fees, within prescribed periods, sufficient to cover the associated equity-based compensation expense.
(2) Transaction-related charges include equity-based compensation charges, the amortization of intangible assets, contingent consideration and certain other charges associated with acquisitions.
(3)
Merger-related transaction and integration costs includes advisory services, technology integration, equity-based compensation charges and other costs associated with the Mergers.
/i
The
following table presents the reconciliation of the Company’s total reportable segment assets to total assets:
(1)
Represents the addition of assets of consolidated funds and VIEs and consolidation elimination adjustments.
/
17. iSUBSEQUENT EVENTS
Dividends
On August 4,
2022, the Company declared a cash dividend of $ii0.398438/
per share of Series A Preferred shares and Series B Preferred shares, which will be paid on September 15, 2022 to holders of record at the close of business on September 1, 2022.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Apollo Asset Management,
Inc.’s condensed consolidated financial statements and the related notes within this quarterly report. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included in the section entitled “Risk Factors” in the 2021 Annual Report. The highlights listed below have had significant effects on many items within our condensed consolidated financial statements and affect the comparison of the current period’s activity with those of prior periods. Target returns included in this report are presented gross and do not account for fees, expenses and taxes, which will reduce returns. Target returns are neither guarantees nor predictions or projections of future performance. There can be no assurance that target returns will be achieved or
that Apollo will be successful in implementing the applicable strategy. Actual gross and net returns for funds managed by Apollo, and individual investors participating directly or indirectly in funds managed by Apollo, may vary significantly from the target returns set forth herein.
General
Our Businesses
Founded in 1990, Apollo is a high-growth, global alternative asset manager. Apollo conducts its business primarily in the United States through the following two reportable segments: asset management and principal investing. These business segments are differentiated based on the investment services they provide as well as varying investing strategies. Apollo had a team of 2,432 employees, including 683 investment professionals,
as of June 30, 2022.
Asset Management
Our asset management segment focuses on three investing strategies: yield, hybrid and equity. We have a flexible mandate in many of the funds we manage which enables the funds to invest opportunistically across a company’s capital structure. We raise, invest and manage funds on behalf of some of the world’s most prominent pension, endowment and sovereign wealth funds, as well as other institutional and individual investors. As of June 30, 2022, we had total AUM of $514.8 billion.
Yield
Yield is our largest asset management strategy with $375.8 billion of AUM as of June 30, 2022. Our yield strategy focuses on
generating excess returns through high-quality credit underwriting and origination. Beyond participation in the traditional issuance and secondary credit markets, through our origination platforms and corporate solutions capabilities we seek to originate attractive and safe-yielding assets for the funds we manage. Within our yield strategy, we target 4% to 10% returns for the funds we manage. Since inception, the total return yield fund has generated a 5% gross ROE and 4% net ROE annualized through June 30, 2022.
Hybrid
Our hybrid strategy, with $56.1 billion of AUM as of June 30, 2022, brings together our capabilities across debt and equity to seek to offer a differentiated risk-adjusted return with an emphasis on structured downside protected opportunities across asset classes. We
target 8% to 15% returns within our hybrid strategy by pursuing investments in all market environments, deploying capital during both periods of dislocation and market strength, and focusing on different investing strategies and asset classes. Our flagship hybrid credit hedge fund has generated a 11% gross ROE and 7% net ROE annualized and our hybrid value funds have generated a 24% gross IRR and a 19% net IRR from inception through June 30, 2022.
Equity
Our equity strategy, with $82.9 billion of AUM as of June 30, 2022, emphasizes flexibility, complexity, and purchase price discipline to drive opportunistic-like returns for the funds we manage throughout market cycles. Apollo’s equity team has experience across sectors, industries, and geographies in both private equity and real estate
equity. Our controlled equity transactions are principally buyouts, corporate carveouts and distressed investments, while our real estate funds generally transact in single asset, portfolio and platform acquisitions. Within our equity strategy, we target upwards of 15% returns in the funds we manage. We have consistently produced attractive long-term investment returns in our traditional private equity funds, generating a 39% gross IRR and a 24% net IRR on a compound annual basis from inception through June 30, 2022.
Our principal investing segment
is comprised of our realized performance fee income, realized investment income from our balance sheet investments, and certain allocable expenses related to corporate functions supporting the entire company. The principal investing segment also includes our growth capital and liquidity resources. We expect to deploy capital into strategic investments over time that will help accelerate the growth of our asset management segment, by broadening our investment management and/or product distribution capabilities or increasing the efficiency of our operations. We believe these investments will translate into greater compounded annual growth of Fee Related Earnings.
Given the cyclical nature of performance fees, earnings from our principal investing segment, or Principal Investing Income (“PII”), is inherently more volatile in nature than earnings from the asset management segment. We earn fees based on the investment performance
of the funds we manage and compensate our employees, primarily investment professionals, with a meaningful portion of these proceeds to align our team with the investors in the funds we manage and incentivize them to deliver strong investment performance over time. We expect to increase the proportion of performance fee income we pay to our employees over time, and as such proportion increases, we expect PII to represent a relatively smaller portion of our total company earnings.
The diagram below depicts our current organizational structure:
Note: The organizational structure chart above depicts a simplified version of the Apollo structure. It does not include all legal entities in the structure.
(1)Includes
direct and indirect ownership by AGM.
Business Environment
As a global alternative asset manager, we are affected by the condition of global financial markets and the economy. Price fluctuations within equity, credit, commodity, foreign exchange markets, as well as interest rates, which may be volatile and mixed across geographies, can significantly impact the performance of our business, including, but not limited to, valuation of investments including those of the funds we manage, and related income we may recognize.
Adverse economic conditions may result from domestic and global economic and political developments, including plateauing or decreasing economic growth and business activity, civil unrest, geopolitical tensions or military action, such as the armed conflict between Ukraine and Russia and corresponding sanctions imposed by
the United States and other countries, and new or evolving legal and regulatory requirements on business investment, hiring, migration, labor supply and global supply chains.
In the U.S., the S&P 500 Index decreased by 16.4% during the second quarter of 2022, following a decrease of 4.9% during the first quarter of 2022. Global equity markets have also been impacted, with the MSCI All Country World ex USA Index decreasing 14.4% during the second quarter of 2022, following a decrease of 4.7% in the first quarter of 2022.
Conditions in the credit markets have a significant impact on our business. Credit markets
are negative in 2022, with the BofAML HY Master II Index decreasing by 10.0% in the second quarter of 2022, while the S&P/LSTA Leveraged Loan Index decreased by 5.3%. The U.S. 10-year Treasury yield at the end of the quarter was 2.98%. In June 2022, the Federal Reserve raised the benchmark interest rate to a target range of 1.50% to 1.75% from a target range of 0% to 0.25% in 2021 and has indicated more rate hikes throughout 2022 in order to tame runaway inflation.
Foreign exchange rates can materially impact the valuations of our investments and those of the funds we manage that are denominated in currencies other than the U.S. dollar. The increasing yield disparity globally drove the strengthening of the U.S. dollar compared to the Euro and the British pound. Relative to the U.S. dollar, the Euro depreciated 5.3% during the second quarter of 2022, after depreciating 2.7% in the first quarter of
2022, while the British pound depreciated 7.3% in the second quarter, after depreciating 2.9% in the first quarter of 2022. The price of crude oil appreciated by 5.5% during the quarter, after appreciating by 33.3% in the first quarter of 2022, in large part due to constrained supply due to the ongoing conflict between Ukraine and Russia, and is expected to stay elevated throughout 2022.
In terms of economic conditions in the U.S., the Bureau of Economic Analysis reported real GDP decreased at an annual rate of 0.9% in the second quarter of 2022, following a decrease of 1.4% in the first quarter of 2022. As of July 2022, the International Monetary Fund estimated that the U.S. economy will expand by 2.3% in 2022 and 1.0% in 2023. The U.S. Bureau of Labor Statistics reported that the U.S. unemployment rate remained unchanged at 3.6% as of June 30, 2022. In addition, the U.S. Bureau
of Labor Statistics reported that the annual U.S. inflation rate increased to 9.1% as of June 30, 2022 from 8.5% as of March 31, 2022, and continues to be the highest rate since the 1980s.
We are actively monitoring the developments in Ukraine resulting from the Russia/Ukraine Conflict and the economic sanctions and restrictions imposed against Russia, Belarus, and certain Russian and Belarussian entities and individuals. Apollo has established a Russia/Ukraine Task Force (“Task Force”) consisting of Legal, Compliance, Operations, Risk, Finance and Treasury personnel to (i) identify and assess any exposure to designated persons or entities across Apollo’s business; (ii) ensure existing surveillance and controls are calibrated to the evolving sanctions; and (iii) ensure appropriate levels of communication across Apollo,
and with other relevant market participants, as appropriate.
As of June 30, 2022, the funds we manage have no investments that would cause Apollo or any Apollo managed fund to be in violation of current international sanctions, and we believe the direct exposure of our funds’ investment portfolios to Russia and Ukraine is insignificant. Apollo and the funds we manage do not intend to make any new material investments in Russia, and have appropriate controls in place to ensure review of any new exposure.
Regardless of the market or economic environment at any given time, Apollo relies on its contrarian, value-oriented approach to consistently invest capital on behalf of its fund investors by focusing on opportunities that management believes are often overlooked by other investors. As such, Apollo’s global integrated investment platform
across yield, hybrid and equity strategies had gross capital deployment of $40.1 billion and $86.0 billion during the three and six months ended June 30, 2022, respectively, driven by asset origination platforms, traditional sources such as commercial real estate, asset-backed securities (“ABS”), CLO debt, high grade alpha transactions, and deployment from traditional private equity funds.
Apollo has one of the largest investing platforms in the world, deploying capital for investors across the risk/return spectrum from investment grade credit all the way up through private equity across its yield, hybrid, and equity investing strategies. Apollo’s focus on nine core industry sectors, combined with more than 32 years of investment experience, has allowed Apollo to respond quickly to changing environments. Apollo’s core industry sectors include chemicals, manufacturing
and industrial, natural resources, consumer and retail, consumer services, business services, financial services, leisure, and media/telecom/technology. Apollo believes that these attributes have contributed to the success of its equity funds investing in buyouts as well as credit opportunities investing in senior loans, high yield, and distressed credit during both expansionary and recessionary economic periods. Over the past decade, to support the significant growth of its yield investing capabilities, Apollo has developed a differentiated asset origination ecosystem which produces private credit and large-cap loan origination investment opportunities for its fund investors and retirement services clients.
In general, institutional investors continue to allocate capital towards alternative investment managers for more attractive risk-adjusted returns in a low interest rate environment, and we believe the business environment
remains generally accommodative to raise larger successor funds, launch new products, and pursue attractive strategic growth opportunities, such as continuing to grow the assets of our perpetual capital vehicles. As such, Apollo had $35.6 billion and $66.3 billion of capital inflows during the three and six months ended June 30, 2022, respectively. Apollo returned $6.8 billion and $11.3 billion of capital and realized gains to the investors in the funds it manages during the three and six months ended June 30, 2022, respectively.
The significant growth of the assets we manage has had a positive effect on our revenues. Management fees are typically calculated based upon any of “net asset value,”“gross assets,”“adjusted par asset value,”“adjusted costs of all unrealized portfolio investments,”“capital commitments,”“invested capital,”“adjusted assets,”“capital contributions,” or “stockholders’ equity,” each as defined in the applicable limited partnership agreement and/or management agreement of the unconsolidated funds or accounts.
Advisoryand Transaction Fees,
Net
As a result of providing advisory services with respect to actual and potential investments, we are entitled to receive fees for transactions related to the acquisition and, in certain instances, disposition and financing of companies, some of which are portfolio companies of the funds we manage, as well as fees for ongoing monitoring of portfolio company operations and directors’ fees. We also receive advisory fees for advisory services provided to certain funds. In addition, monitoring fees are generated on certain structured portfolio company investments. Under the terms of the limited partnership agreements for certain funds, the management fee payable by the funds may be subject to a reduction based on a certain percentage (up to 100%) of such advisory and transaction fees, net of applicable broken deal costs (“Management Fee Offset”). Such amounts are presented as a reduction to advisory
and transaction fees, net, in the condensed consolidated statements of operations (see note 2 to our condensed consolidated financial statements for more detail on advisory and transaction fees, net).
Performance Fees
The general partners of the funds we manage are entitled to an incentive return of normally up to 20% of the total returns of a fund’s capital, depending upon performance of the underlying funds and subject to preferred returns and high water marks, as applicable. Performance fees, categorized as performance allocations, are accounted for as an equity method investment, and effectively, the performance fees for any period are based upon an assumed liquidation of the funds’ assets at the reporting date, and distribution of the net proceeds in accordance with the funds’ allocation provisions. Performance fees categorized as incentive fees, which
are not accounted as an equity method investment, are deferred until fees are probable to not be significantly reversed. Prior to the adoption of the new revenue recognition guidance, incentive fees were recognized on an assumed liquidation basis. The majority of performance fees are comprised of performance allocations.
As of June 30, 2022, approximately 48% of the value of the investments of the funds we manage on a gross basis was determined using market-based valuation methods (i.e., reliance on broker or listed exchange quotes) and the remaining 52% was determined primarily by comparable company and industry multiples or discounted cash flow models. See “Item 1A. Risk Factors—Risks Related to Our Businesses—Our funds’ performance, and our performance, may be adversely affected by the financial performance of our funds’ portfolio companies and
the industries in which our funds invest” in the 2021 Annual Report for discussion regarding certain industry-specific risks that could affect the fair value of certain of the portfolio company investments of the funds we manage.
In certain equity funds we manage, the Company does not earn performance fees until the investors in the fund have achieved cumulative investment returns on invested capital (including management fees and expenses) in excess of an 8% hurdle rate. Additionally, certain of our yield and hybrid funds have various performance fee rates and hurdle rates. Certain of our yield and hybrid funds allocate performance fees to the general partner in a similar manner as the equity funds. In certain of our equity, yield and hybrid funds, so long as the investors achieve their priority returns, there
is a catch-up formula whereby the Company earns a priority return for a portion of the return until the Company’s performance fees equate to its incentive fee rate for that fund; thereafter, the Company participates in returns from the fund at the performance fee rate. Performance fees, categorized as performance allocations, are subject to reversal to the extent that the performance fees distributed exceed the amount due to the general partner based on a fund’s cumulative investment returns. The Company recognizes potential repayment of previously received performance fees as a general partner obligation representing all amounts
previously distributed to the general partner that would need to be repaid to the Apollo funds if these funds were to be liquidated based on the current fair value of the underlying funds’ investments as of the reporting date. The actual general partner obligation, however, would not become payable or realized until the end of a fund’s life or as otherwise set forth in the respective limited partnership agreement of the fund.
The table below presents an analysis of Apollo’s (i) performance fees receivable on an unconsolidated basis and (ii) realized and unrealized performance fees:
As
of June 30,
Performance Fees for the Three Months Ended June 30, 2022
Performance Fees for the Six Months Ended June 30, 2022
2022
Performance
Fees Receivable on an Unconsolidated Basis
Unrealized
Realized
Total
Unrealized
Realized
Total
(in
thousands)
AIOF I and II
$
13,979
$
(1,252)
$
562
$
(690)
$
(2,047)
$
5,605
$
3,558
ANRP
I, II and III(1)(2)
26,269
(64,711)
1,818
(62,893)
(63,720)
1,831
(61,889)
EPF
Funds
116,175
(21,017)
28,789
7,772
(20,523)
37,408
16,885
FCI
Funds
147,754
15,553
—
15,553
8,468
—
8,468
Fund
IX
1,169,760
(3,668)
17,228
13,560
401,515
71,246
472,761
Fund
VIII
329,323
(323,788)
6,347
(317,441)
(396,898)
6,347
(390,551)
Fund
VII(1)
55,360
(9,798)
10,980
1,182
(28,170)
34,524
6,354
Fund
VI
16,021
(400)
276
(124)
(542)
303
(239)
Fund
IV and V(1)
—
(103)
—
(103)
(326)
—
(326)
HVF
I
82,666
(39,303)
42,241
2,938
(23,416)
56,829
33,413
Real
Estate Equity(1)
58,712
(6,752)
10,791
4,039
17,836
13,649
31,485
Corporate
Credit
1,802
(5,747)
5
(5,742)
(4,576)
4,391
(185)
Structured
Finance and ABS
64,478
(14,579)
5,133
(9,446)
(11,383)
10,280
(1,103)
Direct
Origination
129,352
12,472
6,517
18,989
21,989
15,674
37,663
Other(1)(3)
387,716
(25,392)
31,826
6,434
56,077
45,841
101,918
Total
$
2,599,367
$
(488,485)
$
162,513
$
(325,972)
$
(45,716)
$
303,928
$
258,212
Total,
net of profit sharing payable(4)/expense
1,236,855
(298,749)
21,386
(277,363)
(45,826)
17,867
(27,959)
(1)As
of June 30, 2022, certain funds had $81.4 million in general partner obligations to return previously distributed performance fees. The fair value gain on investments and income at the fund level needed to reverse the general partner obligations was $1.3 billion, as of June 30, 2022.
(2)As of June 30, 2022, the remaining investments and escrow cash of ANRP II was valued at 94% of the fund’s unreturned capital, which was below the required escrow ratio of 115%. As a result, the fund is required to place in escrow current and future performance fee distributions to the general partner until the specified return ratio of 115% is met (at the time of a future distribution) or upon liquidation. As of June 30, 2022,
ANRP II had $64.6 million of gross performance fees, or $43.5 million net of profit sharing, in escrow. With respect to ANRP II, realized performance fees currently distributed to the general partner are limited to potential tax distributions and interest on escrow balances per the fund’s partnership agreements. Performance fees receivable as of June 30, 2022 and realized performance fees for the three and six months ended June 30, 2022 include interest earned on escrow balances that is not subject to contingent repayment.
(3)Other includes certain SIAs.
(4)There was a corresponding profit sharing payable of $1.4 billion as of June 30, 2022, including profit sharing payable related to
amounts in escrow and contingent consideration obligations of $104.2 million.
The general partners of certain of the funds we manage accrue performance fees, categorized as performance allocations, when the fair value of investments exceeds the cost basis of the individual investors’ investments in the fund, including any allocable share of expenses incurred in connection with such investments, which we refer to as “high water marks.” These high water marks are applied on an individual investor basis. Certain funds we manage have investors with various high water marks, the achievement of which is subject to market conditions and investment performance.
Performance fees from certain funds we manage are subject to contingent repayment by the general partner in the event of future losses to the extent that the cumulative performance fees distributed from
inception to date exceeds the amount computed as due to the general partner at the final distribution. These general partner obligations, if applicable, are included in due to related parties on the condensed consolidated statements of financial condition.
The following table summarizes our performance fees since inception for our combined segments through June 30, 2022:
Performance
Fees Since Inception(1)
Undistributed by Fund and Recognized
Distributed by Fund and Recognized(2)
Total Undistributed and Distributed by Fund and Recognized(3)
General Partner Obligation(3)
Maximum Performance Fees Subject to Potential Reversal(4)
(in
millions)
AIOF I and II
$
14.0
$
37.1
$
51.1
$
—
$
36.0
ANRP I, II and III
26.3
158.3
184.6
12.0
50.4
EPF
Funds
116.2
467.9
584.1
26.5
331.1
FCI Funds
147.8
24.2
172.0
—
147.8
Fund
IX
1,169.8
460.4
1,630.2
—
1,427.2
Fund VIII
329.3
1,645.2
1,974.5
—
1,381.1
Fund
VII
55.4
3,209.8
3,265.2
—
26.6
Fund VI
16.0
1,663.9
1,679.9
—
0.3
Fund
IV and V
—
2,053.1
2,053.1
32.0
0.4
HVF I
82.7
141.9
224.6
—
149.5
Real
Estate Equity
58.7
70.9
129.6
—
72.0
Corporate Credit
1.8
926.0
927.8
—
1.8
Structured
Finance and ABS
64.5
52.1
116.6
—
54.1
Direct Origination
129.4
65.9
195.3
—
120.0
Other(5)
387.5
1,630.6
2,018.1
10.9
543.5
Total
$
2,599.4
$
12,607.3
$
15,206.7
$
81.4
$
4,341.8
(1)Certain
funds are denominated in Euros and historical figures are translated into U.S. dollars at an exchange rate of €1.00 to $1.05 as of June 30, 2022. Certain funds are denominated in pound sterling and historical figures are translated into U.S. dollars at an exchange rate of Ł1.00 to $1.22 as of June 30, 2022.
(2)Amounts in “Distributed by Fund and Recognized” for the Citi Property Investors (“CPI”), Gulf Stream Asset Management, LLC (“Gulf Stream”), Stone Tower Capital LLC and its related companies (“Stone Tower”) funds and SIAs are presented for activity subsequent to the respective acquisition dates. Amounts exclude certain performance fees from business development companies and Redding Ridge Holdings LP (“Redding Ridge Holdings”), an affiliate
of Redding Ridge.
(3)Amounts were computed based on the fair value of fund investments on June 30, 2022. Performance fees have been allocated to and recognized by the general partner. Based on the amount allocated, a portion is subject to potential reversal or, to the extent applicable, has been reduced by the general partner obligation to return previously distributed performance fees at June 30, 2022. The actual determination and any required payment of any such general partner obligation would not take place until the final disposition of the fund’s investments based on contractual termination of the fund.
(4)Represents the amount of performance fees that would be reversed if remaining fund investments became worthless on June 30,
2022. Amounts subject to potential reversal of performance fees include amounts undistributed by a fund (i.e., the performance fees receivable), as well as a portion of the amounts that have been distributed by a fund, net of taxes and not subject to a general partner obligation to return previously distributed performance fees, except for those funds that are gross of taxes as defined in the respective funds’ governing documents.
(5)Other includes certain SIAs.
Expenses
Compensation and Benefits
Our most significant expense is compensation and benefits expense. This consists of fixed salary, discretionary and non-discretionary bonuses, profit sharing expense associated with the performance fees earned and compensation expense associated with
the vesting of non-cash equity-based awards.
Our compensation arrangements with certain partners and employees contain a significant performance-based incentive component. Therefore, as our net revenues increase, our compensation costs rise. Our compensation costs also reflect the increased investment in people as we expand geographically and create new funds.
In addition, certain professionals and selected other individuals have a profit sharing interest in the performance fees earned in order to better align their interests with our own and with those of the investors in these funds. Profit sharing expense is part of our compensation and benefits expense and is generally based upon a fixed percentage of performance fees. Profit sharing
expense can reverse during periods when there is a decline in performance fees that were previously recognized. Profit sharing amounts are normally distributed to employees after the corresponding investment gains have been realized and generally before preferred returns are achieved for the investors. Therefore, changes in our unrealized performance fees have the same effect on our profit sharing expense. Profit sharing expense increases when unrealized performance fees increases. Realizations only impact profit sharing expense to the extent that the effects on investments have not been recognized previously. If losses on other investments within a fund are subsequently realized, the profit sharing amounts previously distributed are normally subject to a general partner obligation to return performance fees previously distributed back to the funds. This general partner obligation due to the funds would
be realized only when the fund is liquidated, which generally occurs at the end of the fund’s term. However, indemnification obligations also exist for realized gains with respect to Fund IV, Fund V and Fund VI, which, although our Former Managing Partners and Contributing Partners would remain personally liable, may indemnify our Former Managing Partners and Contributing Partners for 17.5% to 100% of the previously distributed profits regardless of the fund’s future performance. See note 14 to our condensed consolidated financial statements for further information regarding the Company’s indemnification liability.
Other Expenses
The balance of our other expenses includes interest, placement fees, and general, administrative and other operating expenses. Interest expense
consists primarily of interest related to the 2024 Senior Notes, the 2026 Senior Notes, the 2029 Senior Notes, the 2030 Senior Notes, the 2048 Senior Notes and the 2050 Subordinated Notes as discussed in note 11 to our condensed consolidated financial statements. Placement fees are incurred in connection with our capital raising activities. In cases where the limited partners of the funds are determined to be the customer in an arrangement, placement fees may be capitalized as a cost to acquire a customer contract, and amortized over the life of the customer contract. General, administrative and other expenses includes occupancy expense, depreciation and amortization, professional fees and costs related to travel, information technology and administration. Occupancy expense represents charges
related to office leases and associated expenses, such as utilities and maintenance fees. Depreciation and amortization of fixed assets is normally calculated using the straight-line method over their estimated useful lives, ranging from two to sixteen years, taking into consideration any residual value. Leasehold improvements are amortized over the shorter of the useful life of the asset or the expected term of the lease. Intangible assets are amortized based on the future cash flows over the expected useful lives of the assets.
Other Income (Loss)
Net Gains (Losses) from Investment Activities
Net gains (losses) from investment activities include both realized gains and losses and the change in unrealized gains and losses in our investment portfolio between the opening reporting date and the closing reporting date.
Net unrealized gains (losses) are a result of changes in the fair value of unrealized investments and reversal of unrealized gains (losses) due to dispositions of investments during the reporting period. Significant judgment and estimation goes into the assumptions that drive these models and the actual values realized with respect to investments could be materially different from values obtained based on the use of those models. The valuation methodologies applied impact the reported value of investment company holdings and their underlying portfolios in our condensed consolidated financial statements.
Net Gains (Losses) from Investment Activities of Consolidated Variable Interest Entities
Changes in the fair value of the consolidated VIEs’ assets and liabilities and related interest, dividend and other income and expenses subsequent to consolidation are
presented within net gains (losses) from investment activities of consolidated variable interest entities and are attributable to non-controlling interests in the condensed consolidated statements of operations.
Other Income (Losses), Net
Other income (losses), net includes gains (losses) arising from the remeasurement of foreign currency denominated assets and liabilities, remeasurement of the tax receivable agreement liability and other miscellaneous non-operating income and expenses.
Income Taxes
Significant judgment is required in determining the provision for income taxes and in evaluating income tax positions, including evaluating uncertainties. We recognize the income tax benefits of uncertain tax positions only where the position is “more
likely than not” to be sustained upon examination, including resolution of any related appeals or litigation, based on the technical merits of the positions. The tax benefit is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If a tax position is not considered more likely than not to be sustained, then no benefits of the position are recognized. The Company’s income tax positions are reviewed and evaluated quarterly to determine whether or not we have uncertain tax positions that require financial statement recognition or de-recognition.
Deferred
tax assets and liabilities are recognized for the expected future tax consequences, using currently enacted tax rates, of differences between the carrying amount of assets and liabilities and their respective tax basis. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Non-Controlling Interests
For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than Apollo. The aggregate of the income or loss and corresponding equity that is not owned by the Company is included
in non-controlling interests in the condensed consolidated financial statements. As of June 30, 2022, the non-controlling interests relates to the 42.6% ownership interest in the Apollo Operating Group held directly by AGM. As of June 30, 2021, non-controlling interests include the 39.8% ownership interest in the Apollo Operating Group held by the Former Managing Partners and Contributing Partners through their limited partner interests in Holdings. Additionally, as of June 30, 2021, Athene held a 6.7% non-controlling interest in the Apollo Operating Group. Non-controlling interests also include limited partner interests in certain consolidated funds and VIEs.
Results
of Operations
Below is a discussion of our condensed consolidated results of operations for the three and six months ended June 30, 2022 and 2021. For additional analysis of the factors that affected our results at the segment level, see “—Segment Analysis” below:
For
the Three Months Ended June 30,
Total Change
Percentage Change
For the Six Months Ended June 30,
Total Change
Percentage Change
2022
2021
2022
2021
(in
thousands)
(in thousands)
Revenues:
Management fees
$
560,010
$
470,092
$
89,918
19.1%
$
1,082,946
$
927,277
$
155,669
16.8%
Advisory
and transaction fees, net
110,492
86,351
24,141
28.0
176,278
142,699
33,579
23.5
Investment income (loss)
(192,178)
811,564
(1,003,742)
NM
510,137
2,588,877
(2,078,740)
(80.3)
Incentive
fees
1,953
14,318
(12,365)
(86.4)
7,803
18,172
(10,369)
(57.1)
Total Revenues
480,277
1,382,325
(902,048)
(65.3)
1,777,164
3,677,025
(1,899,861)
(51.7)
Expenses:
Compensation
and benefits:
Salary, bonus and benefits
234,013
181,299
52,714
29.1
452,267
355,929
96,338
27.1
Equity-based
compensation
112,470
52,998
59,472
112.2
268,758
109,446
159,312
145.6
Profit sharing expense
(37,578)
361,247
(398,825)
NM
321,984
1,016,727
(694,743)
(68.3)
Total
compensation and benefits
308,904
595,544
(286,640)
(48.1)
1,043,009
1,482,102
(439,093)
(29.6)
Interest expense
31,432
34,814
(3,382)
(9.7)
64,425
69,613
(5,188)
(7.5)
General,
administrative and other
150,721
116,429
34,292
29.5
291,084
216,816
74,268
34.3
Total Expenses
491,057
746,787
(255,730)
(34.2)
1,398,518
1,768,531
(370,013)
(20.9)
Other
Income:
Net gains from investment activities
146,054
913,394
(767,340)
(84.0)
917,316
1,266,545
(349,229)
(27.6)
Net
gains from investment activities of consolidated variable interest entities
36,617
145,403
(108,786)
(74.8)
316,072
257,997
58,075
22.5
Interest income
5,786
645
5,141
NM
8,622
1,443
7,179
497.5
Other
income (loss), net
12,170
4,531
7,639
168.6
(13,013)
(13,219)
206
(1.6)
Total Other Income
200,627
1,063,973
(863,346)
(81.1)
1,228,997
1,512,766
(283,769)
(18.8)
Income
before income tax provision
189,847
1,699,511
(1,509,664)
(88.8)
1,607,643
3,421,260
(1,813,617)
(53.0)
Income tax provision
(7,627)
(194,051)
186,424
(96.1)
(141,801)
(397,297)
255,496
(64.3)
Net
Income
182,220
1,505,460
(1,323,240)
(87.9)
1,465,842
3,023,963
(1,558,121)
(51.5)
Net income attributable to non-controlling interests
(114,099)
(847,733)
733,634
(86.5)
(800,753)
(1,687,346)
886,593
(52.5)
Net
Income Attributable to Apollo Asset Management, Inc.
68,121
657,727
(589,606)
(89.6)
665,089
1,336,617
(671,528)
(50.2)
Series A Preferred share dividends
(4,383)
(4,383)
—
—
(8,766)
(8,766)
—
—
Series
B Preferred share dividends
(4,782)
(4,781)
(1)
—
(9,563)
(9,562)
(1)
—
Net Income Attributable to Apollo Asset Management, Inc. Common Stockholders
$
58,956
$
648,563
$
(589,607)
(90.9)%
$
646,760
$
1,318,289
$
(671,529)
(50.9)%
Note:
“NM” denotes not meaningful. Changes from negative to positive amounts and positive to negative amounts are not considered meaningful. Increases or decreases from zero and changes greater than 500% are also not considered meaningful.
In this section, references to 2022 refer to the three months ended June 30, 2022 and references to 2021 refer to the three months ended June 30,
2021.
Revenues
Revenues were $480.3 million in 2022, a decrease of $902.0 million from $1.4 billion in 2021, primarily driven by lower investment income (loss). Investment income (loss) decreased $1.0 billion in 2022 to a loss of $192.2 million compared to a gain of $811.6 million in 2021. The investment loss for 2022 was primarily attributable to decreases in performance allocations from Fund VIII, Fund IX, ANRP II and Fund VII of $452.3 million, $281.2 million, $119.5 million and $98.0 million, respectively, as a result of equity market volatility in 2022.
See below for details on the respective fund’s performance allocations.
The decrease in performance allocations from Fund VIII was primarily driven by depreciation in the value of the fund’s investments in public portfolio companies primarily
in the consumer services, leisure and media, telecom and technology sectors, as well as depreciation in private portfolio companies primarily in the telecom and technology sectors during 2022.
The decrease in performance allocations from Fund IX was primarily driven by depreciation in the value of the fund’s investments in public portfolio companies primarily in the media, telecom and technology sector as well as lower appreciation in private portfolio companies primarily in the media, telecom and technology, leisure, and manufacturing and industrial sectors during 2022.
The decrease in performance allocations from ANRP II was primarily driven by depreciation in the value of the fund’s private investments in the natural resources sector during 2022.
The decrease in performance allocations from Fund VII was primarily driven by lower appreciation
in the value of the fund’s investments in private portfolio companies in the consumer services sector during 2022.
The decrease in revenues was offset, in part, by an increase in management fees of $89.9 million to $560.0 million in 2022 from $470.1 million in 2021. The increase in management fees was primarily attributable to increases in management fees earned from Athene and MidCap of $37.2 million and $11.7 million, respectively, as a result of higher Fee-Generating AUM in 2022, and $16.3 million from the acquisition of Griffin Capital’s U.S. asset management business in 2022.
Expenses
Expenses were $491.1 million in 2022, a decrease of $255.7 million from $746.8 million in 2021 due to a decrease in profit sharing expense of $398.8 million resulting from lower investment income during 2022. In any period, the blended profit sharing
percentage is impacted by the respective profit sharing ratios of the funds generating performance allocations in the period. This decrease was partially offset by increases in equity-based compensation of $59.5 million and an increase in salary, bonus and benefits of $52.7 million due to accelerated headcount growth in 2022. In addition, equity-based compensation increased as a result of: i) performance grants which are tied to the Company’s receipt of performance fees, within prescribed periods and are typically recognized on an accelerated recognition method over the requisite service period to the extent the performance revenue metrics are met or deemed probable, and ii) the impact of one-time grants awarded to the Co-Presidents which vest on a cliff basis subject to continued employment over five years and the
Company’s achievement of FRE and SRE per share metrics.
General, administrative and other expenses were $150.7 million in 2022, an increase of $34.3 million from $116.4 million in 2021. The increase in 2022 is driven by increases in depreciation, primarily associated with the Company’s commitment asset, travel and entertainment expenses, professional fees and the absorption of occupancy expense to support the Company’s increased headcount, as well as the acquisition of Griffin Capital’s U.S. asset management business, partially offset by decreases in recruitment fees.
Other Income
Other Income was $201 million in 2022, a decrease of $863 million from $1.1 billion
in 2021. Other Income in 2022 was primarily attributable to a gain from one of the Company’s balance sheet investments and income earned as a result of APSG I’s deconsolidation event, partially offset by foreign currency losses. Other Income in 2021 was primarily due to net gains from investment activities from the Company’s investment in Athene Holding during 2021. Following the Mergers, AAM no longer
holds an interest in AHL. Refer to note 14 for further details regarding APSG I’s
deconsolidation event in 2022 and the Mergers.
Income Tax Provision
The Company’s income tax provision totaled $7.6 million and $194.1 million in 2022 and 2021, respectively. The change to the provision was primarily related to the decrease in pre-tax income. The provision for income taxes includes federal, state, local and foreign income taxes resulting in an effective income tax rate of 4.0% and 11.4% for 2022 and 2021, respectively. The most significant reconciling items between the U.S. federal statutory income tax rate and the effective income tax rate were due to the following: (i) income passed through to non-controlling interests, (ii) foreign, state and local income taxes, including New York City unincorporated business taxes (“NYC UBT”), and (iii) equity-based compensation net
of the limiting provisions for executive compensation under IRC Section 162(m) (see note 10 to the condensed consolidated financial statements for further details regarding the Company’s income tax provision).
In this section, references to 2022 refer to the six months ended June 30, 2022 and references to 2021 refer to the six months ended June 30, 2021.
Revenues
Revenues were $1.8 billion in 2022, a decrease of $1.9 billion from $3.7 billion
in 2021 primarily driven by lower investment income. Investment income (loss) decreased $2.1 billion in 2022 to $510.1 million compared to $2.6 billion in 2021. The decrease in investment income for 2022 was primarily attributable to decreases in performance allocations from Fund VIII, Fund IX and ANRP II of $1.1 billion, $214.0 million and $203.1 million, respectively, as a result of the equity market volatility in 2022.
See below for details on the respective fund’s performance allocations.
The decrease in performance allocations from Fund VIII was primarily driven by the depreciation in the value of the fund’s investments in public portfolio companies primarily in the consumer services, leisure, and media, telecom and technology sectors, as well as depreciation in private portfolio companies primarily in the telecom and technology and consumer services sectors during 2022.
The
decrease in performance allocations from Fund IX was primarily driven by the depreciation in the value of the fund’s investments in public and private portfolio companies in the media, telecom and technology sector during 2022.
The decrease in performance allocations from ANRP II was primarily driven by the depreciation in the value of the fund’s private investments in the natural resources sector during 2022.
The decrease in revenues was offset, in part, by an increase in management fees of $155.7 million to $1.1 billion in 2022 from $927.3 million in 2021. The increase in management fees was primarily attributable to an increase in management fees earned from Athene and MidCap of $85.7 million and $10.7 million, respectively, as a result of higher Fee-Generating AUM in 2022 and $16.3 million from the acquisition of Griffin Capital’s U.S. asset management business in 2022.
Expenses
Expenses
were $1.4 billion in 2022, a decrease of $370.0 million from $1.8 billion in 2021 primarily due to a decrease in profit sharing expense of $694.7 million resulting from lower investment income during 2022. This decrease was partially offset by an increase in equity-based compensation of $159.3 million and an increase in salary, bonus and benefits of $96.3 million due to accelerated headcount growth in 2022, including for certain senior level roles, as the Company strategically invests in talent that will seek to capture its next leg of growth. In addition, equity-based compensation increased as a result of: i) performance grants which are tied to the Company’s receipt of performance fees, within prescribed periods and are typically recognized on an accelerated recognition method over the requisite
service period to the extent the performance revenue metrics are met or deemed probable, and ii) the impact of one-time grants awarded to the Co-Presidents which vest on a cliff basis subject to continued employment over five years and the Company’s achievement of FRE and SRE per share metrics.
General, administrative and other expenses were $291.1 million in 2022, an increase of $74.3 million from $216.8 million in 2021. The increase in 2022 is driven by increases in depreciation, primarily associated with the Company’s commitment asset, travel and entertainment expenses, professional fees and the absorption of occupancy expense to support the Company’s increased headcount,
as well as the acquisition of Griffin Capital’s U.S. asset management business, partially offset by decreases in recruitment fees.
Other Income was $1.2 billion in 2022, a decrease of $283.8 million from $1.5 billion in 2021. Other Income in 2022 was primarily attributable to net gains from investment activities as a result of realized investment income from dividend income earned on one of our balance sheet investments and income earned as a result of APSG I’s deconsolidation event in 2022. Other Income in 2021 was primarily due to net gains from investment activities from the
Company’s investment in Athene Holding during 2021. Following the Mergers, AAM no longer holds an interest in AHL. Refer to note 14 for further details regarding APSG I’s deconsolidation event in 2022 and the Mergers.
Income Tax Provision
The Company’s income tax provision totaled $141.8 million and $397.3 million in 2022 and 2021, respectively. The change to the provision was primarily related to the decrease in pre-tax income. The provision for income taxes includes federal, state, local and foreign income taxes resulting in an effective income tax rate of 8.8% and 11.6% for 2022 and 2021, respectively. The most significant reconciling items between the U.S. federal statutory income tax rate and the effective income tax rate were due to the following: (i) income passed through to non-controlling
interests, (ii) foreign, state and local income taxes, including New York City unincorporated business taxes (“NYC UBT”), and (iii) equity-based compensation net of the limiting provisions for executive compensation under IRC Section 162(m) (see note 10 to the condensed consolidated financial statements for further details regarding the Company’s income tax provision).
Managing Business Performance
We believe that the presentation of Adjusted Segment Income supplements a reader’s understanding of the economic operating performance of our segments.
Adjusted Segment Income
Adjusted Segment
Income is the key performance measure used by management in evaluating the performance of Apollo’s asset management and principal investing segments. See note 16 to the condensed consolidated financial statements for more details regarding the components of Adjusted Segment Income.
We believe that Adjusted Segment Income is helpful for an understanding of our business and that investors should review the same supplemental financial measure that management uses to analyze our segment performance. This measure supplements and should be considered in addition to and not in lieu of the results of operations discussed below in “—Overview of Results of Operations” that have been prepared in accordance with U.S. GAAP. See note 16 to the condensed consolidated financial statements for more details regarding management’s consideration of Segment Earnings.
Fee Related Earnings and
Principal Investing Income
FRE is a component of Adjusted Segment Income and represents the performance measure used to assess the performance of the asset management segment.
PII is a component of Adjusted Segment Income and represents the performance measure used to assess the performance of the principal investing segment.
See note 16 to the condensed consolidated financial statements for more details regarding the components of FRE and PII.
We use Adjusted Segment Income, FRE, and PII as measures of operating performance, not as measures of liquidity. These measures should not be considered in isolation or as a substitute for net income or other income data prepared in accordance with U.S. GAAP. The use of these measures without consideration of their related U.S. GAAP measures is not adequate
due to the adjustments described above.
Segment Analysis
Discussed below are our results of operations for each of our reportable segments. They represent the segment information available and utilized by our management to assess performance and to allocate resources. See note 16 to our condensed consolidated financial statements for more information regarding our segment reporting.
Our financial results vary, since performance fees, which generally constitute a large portion of the income from the funds that we manage, as well as the transaction and advisory fees that we receive, can vary significantly from quarter to quarter and year to year. As a result, we emphasize long-term financial growth and profitability to
manage our business.
The following table presents Fee Related Earnings, the performance measure of our asset management segment.
Three
Months ended June 30,
Total Change
Percentage Change
Six Months ended June 30,
Total Change
Percentage Change
2022
2021
2022
2021
(in
thousands)
(in thousands)
Asset Management:
Management fees - Yield
$
342,215
$
291,769
$
50,446
17.3%
$
675,520
$
572,845
$
102,675
17.9%
Management
fees - Hybrid
52,666
41,579
11,087
26.7
101,012
80,756
20,256
25.1
Management fees - Equity
126,991
135,485
(8,494)
(6.3)
250,741
269,116
(18,375)
(6.8)
Management
fees
521,872
468,833
53,039
11.3
1,027,273
922,717
104,556
11.3
Advisory and transaction fees, net
103,136
83,235
19,901
23.9
167,249
138,730
28,519
20.6
Fee-related
performance fees
11,651
8,075
3,576
44.3
25,877
16,846
9,031
53.6
Fee-related compensation
(187,224)
(161,579)
(25,645)
15.9
(362,596)
(315,974)
(46,622)
14.8
Other
operating expenses
(108,327)
(79,651)
(28,676)
36.0
(206,711)
(141,715)
(64,996)
45.9
Fee Related Earnings (FRE)
$
341,108
$
318,913
$
22,195
7.0
$
651,092
$
620,604
$
30,488
4.9
Three
Months ended June 30,
Total Change
Percentage Change
Six Months ended June 30,
Total Change
Percentage Change
2021
2020
2021
2020
(in
thousands)
(in thousands)
Asset Management:
Management fees - Yield
$
291,769
$
227,669
$
64,100
28.2%
$
572,845
$
442,119
$
130,726
29.6%
Management
fees - Hybrid
41,579
34,839
6,740
19.3
80,756
64,909
15,847
24.4
Management fees - Equity
135,485
139,314
(3,829)
(2.7)
269,116
277,162
(8,046)
(2.9)
Management
fees
468,833
401,822
67,011
16.7
922,717
784,190
138,527
17.7
Advisory and transaction fees, net
83,235
61,749
21,486
34.8
138,730
98,481
40,249
40.9
Fee-related
performance fees
8,075
3,440
4,635
134.7
16,846
5,844
11,002
188.3
Fee-related compensation
(161,579)
(127,966)
(33,613)
26.3
(315,974)
(246,422)
(69,552)
28.2
Other
operating expenses
(79,651)
(64,440)
(15,211)
23.6
(141,715)
(126,585)
(15,130)
12.0
Fee Related Earnings (FRE)
$
318,913
$
274,605
$
44,308
16.1
$
620,604
$
515,508
$
105,096
20.4
In
this section, references to 2022 refer to the three months ended June 30, 2022, references to 2021 refer to the three months ended June 30, 2021 and references to 2020 refer to the three months ended June 30, 2020.
FRE was $341.1 million in 2022, an increase of $22.2 million compared to $318.9 million in 2021. This increase was primarily attributable to continued growth in management fees and record quarterly advisory and transaction fees. The increase in management fees was primarily
attributable to an increase in management fees earned from Athene of $37.2 million, as a result of higher Fee-Generating AUM in 2022, and $16.3 million from the acquisition of Griffin Capital’s U.S. asset management business in 2022. The growth in revenues was offset, in part, by higher fee-related compensation expenses and other operating expenses due to the re-basing of cost structure from a higher headcount base to support the Company’s next phase of growth as well as higher travel and entertainment costs, occupancy expenses, and professional fees in 2022.
FRE
was $318.9 million in 2021, an increase of $44.3 million compared to $274.6 million in 2020. This increase was primarily attributable to the growth in management fees and advisory and transaction fees. The increase in management fees was driven by our yield funds, primarily from Athene and Athora. The increase in advisory and transaction fees was primarily driven by structuring fees earned from a company in the consumer and retail industry. The growth in revenues was offset, in part, by higher fee-related compensation expenses due to an increase in headcount as we continued to expand our global team in 2021.
In this
section, references to 2022 refer to the six months ended June 30, 2022, references to 2021 refer to the six months ended June 30, 2021 and references to 2020 refer to the six months ended June 30, 2020.
FRE was $651.1 million in 2022, an increase of $30.5 million compared to $620.6 million in 2021. This increase was primarily attributable to the continued growth in management fees and advisory and transaction fees. The increase in management fees was primarily attributable to an increase
in management fees earned from Athene of $85.7 million, as a result of higher Fee-Generating AUM in 2022, and $16.3 million from the acquisition of Griffin Capital’s U.S. asset management business in 2022. The growth in revenues was offset, in part, by higher fee-related compensation expenses and other operating expenses due to a higher headcount base to support the Company’s next phase of growth as well as higher travel and entertainment costs, occupancy expenses, and professional fees in 2022.
FRE was $620.6 million in 2021, an increase of $105.1
million compared to $515.5 million in 2020. This increase was primarily attributable to the growth in management fees and advisory and transaction fees. The increase in management fees was primarily driven by yield funds, primarily from Athene. The increase in advisory and transaction fees were primarily driven by fees earned related to portfolio companies in the consumer and retail industries during 2021.The growth in revenues was offset, in part, by higher fee-related compensation expense due to an increase in headcount as we continued to expand our global team in 2021.
Asset Management Operating Metrics
We monitor certain operating metrics that are common to the alternative asset management industry and directly impact the performance of our asset management
segment. These operating metrics include Assets Under Management, gross capital deployment and uncalled commitments.
Assets Under Management
The following presents Apollo’s Total AUM and Fee-Generating AUM by investing strategy (in billions):
The following presents Apollo’s AUM with Future Management
Fee Potential by investing strategy (in billions):
The following tables present the components of Performance Fee-Eligible AUM for each of Apollo’s three investing strategies within the asset management segment:
(1) Performance Fee-Generating AUM
of $3.1 billion, $4.7 billion and $5.2 billion as of June 30, 2022, June 30, 2021 and December 31, 2021, respectively, are above the hurdle rates or preferred returns and have been deferred to future periods when the fees are probable to not be significantly reversed.
(1) The
weighted average remaining life of the traditional private equity funds as of December 31, 2021 was 64 months.
Apollo, through its consolidated subsidiary, ISG, provides asset management services to Athene with respect to assets in the Athene Accounts, including asset allocation services, direct asset management services, asset and liability matching management, mergers and acquisitions, asset diligence, hedging and other asset management services and receives management fees for providing these services. Apollo, through ISG, also provides sub-allocation services with respect to a portion of the assets in the Athene Accounts. See note 14 to the condensed consolidated financial statements for more details regarding the fee rates of the investment management and sub-allocation fee arrangements with respect to the assets in the Athene Accounts. Apollo managed
or advised $225.4 billion, $212.6 billion, and $193.9 billion of AUM on behalf of Athene as of June 30, 2022, December 31, 2021 and June 30, 2021, respectively.
Apollo, through ISGI, provides investment advisory services with respect to certain assets in certain portfolio companies of Apollo funds and sub-advises the Athora Accounts and broadly refers to “Athora Sub-Advised” assets as those assets in the Athora Accounts which the Company explicitly sub-advises as well as those assets in the Athora Accounts which are invested directly in funds and investment vehicles Apollo manages. The Company refers
to the portion of the Athora AUM that is not Athora Sub-Advised AUM as “Athora Non-Sub Advised” AUM. See note 14 to the condensed consolidated financial statements for more details regarding the fee arrangements with respect to the assets in the Athora Accounts. Apollo managed or advised $44.1 billion, $59.0 billion, and $61.2 billion of AUM on behalf of Athora as of June 30, 2022, December 31, 2021 and June 30, 2021, respectively.
(1)
At the individual strategy level, inflows include new subscriptions, commitments, capital raised, other increases in available capital, purchases, acquisitions and portfolio company appreciation. Outflows represent redemptions, other decreases in available capital and portfolio company depreciation. Realizations represent fund distributions of realized proceeds. Market activity represents gains (losses), the impact of foreign exchange rate fluctuations and other income.
(2) Outflows for Total AUM include redemptions of $0.8 billion and $0.5 billion during the three months ended June 30, 2022 and 2021, respectively.
(3) Includes foreign exchange impacts of
$(4.7) billion and $0.8 billion during the three months ended June 30, 2022 and 2021, respectively.
(1)
At the individual strategy level, inflows include new subscriptions, commitments, capital raised, other increases in available capital, purchases, acquisitions and portfolio company appreciation. Outflows represent redemptions, other decreases in available capital and portfolio company depreciation. Realizations represent fund distributions of realized proceeds. Market activity represents gains (losses), the impact of foreign exchange rate fluctuations and other income.
(2) Outflows for Total AUM include redemptions of $1.4 billion and $1.3 billion during the six months ended June 30, 2022 and 2021, respectively.
(3) Includes foreign exchange impacts of $(7.2)
billion and $(2.5) billion during the six months ended June 30, 2022 and 2021, respectively.
(1)
At the individual strategy level, inflows include new subscriptions, commitments, capital raised, other increases in available capital, purchases, acquisitions and portfolio company appreciation. Outflows represent redemptions, other decreases in available capital and portfolio company depreciation. Realizations represent fund distributions of realized proceeds. Market activity represents gains (losses), the impact of foreign exchange rate fluctuations and other income.
(2) Outflows for Fee-Generating AUM include redemptions of $0.5 billion and $0.5 billion during the three months ended June 30, 2022 and 2021, respectively.
(3))Includes
foreign exchange impacts of $(3.8) billion and $0.7 billion, during the three months ended June 30, 2022 and 2021, respectively.
(1)
At the individual strategy level, inflows include new subscriptions, commitments, capital raised, other increases in available capital, purchases, acquisitions and portfolio company appreciation. Outflows represent redemptions, other decreases in available capital and portfolio company depreciation. Realizations represent fund distributions of realized proceeds. Market activity represents gains (losses), the impact of foreign exchange rate fluctuations and other income.
(2) Outflows for Fee-Generating AUM include redemptions of $0.9 billion and $1.2 billion during the six months ended June 30, 2022 and 2021, respectively.
(3))Includes
foreign exchange impacts of $(5.7) billion and $(2.1) billion, during the six months ended June 30, 2022 and 2021, respectively.
Gross Capital Deployment and Uncalled Commitments
Gross capital deployment represents the gross capital that has been invested in investments by the funds and accounts we manage during the relevant period, but excludes certain investment activities primarily related to hedging and cash management functions at the firm. Gross capital deployment is not reduced or netted down by sales or refinancings, and takes into account leverage used by the funds and accounts we manage in gaining exposure to the various investments that they have made.
Uncalled commitments, by contrast, represent unfunded
capital commitments that certain of Apollo’s funds have received from fund investors to fund future or current fund investments and expenses.
Gross capital deployment and uncalled commitments are indicative of the pace and magnitude of fund capital that is deployed or will be deployed, and which therefore could result in future revenues that include management fees, transaction fees and performance fees to the extent they are fee-generating. Gross capital deployment and uncalled commitments can also give rise to future costs that are related to the hiring of additional resources to manage and account for the additional capital that is deployed or will be deployed. Management uses gross capital deployment and uncalled commitments as key operating metrics since we believe the results are measures of investment activities of the funds we manage.
The following presents gross capital deployment and uncalled commitments (in billions):
As of June 30, 2022 and December 31, 2021, Apollo had $50.4 billion and $47.2 billion of dry powder, respectively, which represents the amount of capital available for investment or reinvestment subject to the provisions of the applicable governing agreements of the funds, partnerships and accounts we manage. These amounts exclude uncalled commitments which
can only be called for fund fees and expenses, and commitments from perpetual capital vehicles.
Principal Investing
The following table presents Principal Investing Income, the performance measure of our principal investing segment.
As described in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — General”, earnings from our principal investing segment are inherently more volatile in nature than earnings from our asset management segment due to the intrinsic cyclical nature of performance fees, one of the key drivers of PII performance.
In this section, references to 2022 refer to the three months ended June 30, 2022, references to 2021 refer to the three months ended June 30, 2021 and references to 2020 refer to the three months ended June 30, 2020.
PII was $26.8 million in 2022, a decrease of $245.5 million, as compared to $272.2 million in 2021. This decrease was primarily attributable to a decrease in realized performance fees earned from Fund VIII of $333.8 million in 2022. The decrease in realized performance fees from Fund VIII was due to the depreciation in the value of the fund’s investments in public and private portfolio companies across industries, which delayed monetization activity in 2022 compared to 2021.
Principal investing compensation expense decreased as a result of a corresponding decrease in realized performance fees. In any period, the blended profit sharing percentage is impacted by the respective profit sharing ratios of the funds generating performance allocations in the period. Additionally, included in principal investing
compensation are expenses related to the Incentive Pool, a compensation program through which certain employees are allocated discretionary compensation based on realized performance fees in a given year. The Incentive Pool is separate from the fund related profit sharing expense and may result in greater variability in compensation and have a variable impact on the blended profit sharing percentage during a particular period.
PII was $272.2 million in 2021, an increase of $283.3 million, as compared to $(11.1) million in 2020. This increase was primarily attributable to increases in realized performance fees and realized investment income offset, partially, by an increase in principal investing compensation
expenses. Realized performance fees increased to $468.8 million in 2021 from $10.8 million in 2020 driven by an increase in realized performance fees generated from Fund VIII of $340.5 million as well as income from the sale of a mortgage business of $75.0 million in 2021. In 2020, the COVID-19 pandemic and the actions taken in response caused severe disruption to the global economy and financial markets. In line with public equity and credit indices, the Company experienced significant unrealized mark-to-market losses in underlying funds which significantly delayed monetization activity. The increase in realized investment income was primarily attributable to an increase in realizations from Apollo’s equity ownership in Fund VIII in 2021. Principal investing compensation expense increased as a result of a corresponding increase in realized performance fees as described above.
In
this section, references to 2022 refer to the six months ended June 30, 2022, references to 2021 refer to the six months ended June 30, 2021 and references to 2020 refer to the six months ended June 30, 2020.
PII was $431.4 million in 2022, an increase of $98.0 million, as compared to $333.4 million in 2021. This increase was primarily attributable to an increase in realized investment income and partially offset by a decrease in realized performance fees. The increase in realized investment income was due to dividends earned from one of our balance sheet investments
and also includes realized gains on certain of Apollo’s general partner fund co-investments transferred to Athene in the first quarter of 2022 that were subsequently transferred to a fund managed by Apollo and including third-party capital in the second quarter of 2022. This increase was offset, in part, by a decrease in realized performance fees of 51.7% to $278.1 million in 2022 from $575.5 million in 2021 primarily driven by depreciation in the value of Fund VIII’s investments in public and private portfolio companies across industries which delayed monetization activity compared to 2021.
PII was $333.4 million in 2021, an increase of $365.8 million, as compared to $(32.4) million in 2020. This increase was
primarily attributable to increases in realized performance fees, partially offset by an increase in principal investing compensation expenses. Realized performance fees increased to $575.5 million in 2021 from $76.6 million in 2020 driven by an increase in performance fees generated from Fund VIII of $395.0 million as well as fees generated from the sale of a mortgage business of $75.0 million. In 2020, the COVID-19 pandemic and the actions taken in response caused severe disruption to the global economy and financial markets. In line with public equity and credit indices, the Company experienced significant unrealized mark-to-market losses in underlying funds which significantly delayed monetization activity. Principal investing compensation expense increased as a result of a corresponding increase in realized performance fees as described above.
Apollo’s business model primarily derives revenues and cash flows from the assets it manages. Based on management’s experience, we believe that the Company’s current liquidity position, together with the cash generated from revenues will be sufficient to meet the Company’s anticipated expenses and other working capital needs for at least the next 12 months. Apollo targets operating expense levels such that fee income exceeds total operating expenses each period. The Company requires limited capital resources to support
the working capital or operating needs of the business. For Apollo’s longer-term liquidity needs, we expect to continue to fund the Company’s operations through management fees and performance fees received. Liquidity needs are also met (to a limited extent) through proceeds from borrowings and equity issuances as described in notes 11 and 13 to the condensed consolidated financial statements, respectively. From time to time, if the Company determines that market conditions are favorable after taking into account our liquidity requirements, we may seek to raise proceeds through the issuance of additional debt or equity instruments.
As of June 30, 2022, the
Company had $1.5 billion of unrestricted cash and cash equivalents and $474 million of U.S. Treasury Securities as well as $750 million of available funds from the AMH credit facility.
Primary Sources and Uses of Cash
Over the next 12 months, we expect the Company’s primary liquidity needs will be to:
•pay the Company’s operating expenses, including, compensation, general, administrative and other expense;
•pay interest and principal on the Company’s financing arrangements;
•pay
cash dividends to Preferred shareholders;
•make payments under the tax receivable agreement;
•pay taxes and tax related payments;
•make payments related to the mandatory exchange; and
•support the future growth of Apollo’s businesses through strategic corporate investments.
Over the long term, we believe we will be able to grow Apollo’s Assets Under Management and generate positive investment performance in the funds we manage, which we expect will allow us to grow the Company’s management fees and performance fees in amounts sufficient to cover our long-term liquidity
requirements, which may include:
•supporting the future growth of Apollo’s businesses;
•creating new or enhancing existing products and investment platforms;
•pursuing new strategic corporate investment opportunities;
•paying interest on and repaying outstanding short-term and long-term borrowings;
•pay cash dividends to Preferred shareholders;
•making payments under the tax receivable agreement; and
•making payments related to the mandatory exchange.
The section below discusses in more detail the Company’s primary sources and uses of cash and the primary drivers of cash flows within the Company’s condensed consolidated statements of cash flows:
Net Increase in Cash and Cash Equivalents, Restricted Cash and Cash Held at Consolidated Variable Interest Entities
$
166,582
$
1,688,819
The assets of our consolidated funds and VIEs (including SPACs), on a gross basis, can be substantially larger than the assets of our core business and, accordingly, could have a substantial effect on the accompanying
statement of cash flows. Because our consolidated funds and VIEs are treated as investment companies for accounting purposes, their investing cash flow amounts are included in our cash flows from operations. The table below summarizes our condensed consolidated statements of cash flow by activity attributable to the Company and to our consolidated funds and VIEs.
Net cash provided by the Company’s operating activities
$
864,262
$
1,121,970
Net cash used in the Consolidated Funds and VIEs operating activities
(2,236,542)
(28,806)
Net cash provided by (used in) operating activities
$
(1,372,280)
1,093,164
Net
cash used in the Company’s investing activities
$
(262,157)
(60,183)
Net cash provided by the Consolidated Funds and VIEs investing activities
819,280
832,019
Net cash provided by investing activities
$
557,123
771,836
Net
cash provided by (used in) the Company’s financing activities
$
11,669
(793,631)
Net cash provided by the Consolidated Funds and VIEs financing activities
970,070
617,450
Net cash provided by (used in) financing activities
$
981,739
$
(176,181)
Operating
Activities
The Company’s operating activities support its asset management activities and underlying investment strategies. The primary sources of cash within the operating activities section include: (a) management fees, (b) advisory and transaction fees, (c) realized performance revenues, (d) due from related parties and (e) realized principal investment income. The primary uses of cash within the operating activities section include: (a) compensation and non-compensation related expenses, (b) interest and taxes, and (c) due to related parties.
•During the six months ended June 30, 2022, cash used in operating activities reflects operating activities of our consolidated funds and VIEs, which primarily includes cash outflows
for purchases of investments. Cash provided by the Company’s operating activities includes cash inflows from the receipt of management fees, advisory and transaction fees, realized performance revenues, and realized principal investment income, offset by cash outflows for compensation, general, administrative, and other expenses.
•During the six months ended June 30, 2021 cash provided by operating activities primarily includes cash inflows from the receipt of management fees, advisory and transaction fees, realized performance revenues, and realized principal investment income, offset by cash outflows for compensation, general, administrative, and other expenses. Net cash provided by operating activities also reflects the operating activity of our consolidated funds
and VIEs, which primarily include cash inflows from consolidated funds and from sales of investments, offset by cash outflows for purchases of investments.
The Company’s investing activities support the growth of its business. The primary sources of cash within the investing activities section include proceeds from maturities in U.S. Treasury securities. The primary uses of cash within the investing activities section include: (a) capital expenditures, (b) investment purchases, including purchases of U.S.
Treasury securities, and (c) issuances of related party loans.
•During the six months ended June 30, 2022, cash provided by investing activities primarily reflects net proceeds from the sale of U.S. Treasury securities of a SPAC, offset by purchases of investments.
•During the six months ended June 30, 2021, cash provided by investing activities primarily reflects the investing activity of our consolidated funds and VIEs, which primarily reflects net proceeds from maturities of U.S. Treasury securities.
Financing Activities
The Company’s financing activities reflect
its capital market transactions and transactions with owners. The primary uses of cash within the financing activities section include: (a) dividends, (b) issuances of warrants, (c) share repurchases, (d) cash paid to settle tax withholding obligations in connection with net share settlements of equity-based awards and (e) repayments of debt.
•During the six months ended June 30, 2022, net cash provided by financing activities reflects the financing activity of our consolidated funds and VIEs, which primarily includes cash inflows from the issuance of debt and the net proceeds from related party loans.
•During the six months ended June 30, 2021, cash used in financing activities primarily reflects dividends to Class A shareholders, distributions
to non-controlling interest holders, and repurchases of Class A shares. Net cash used in financing activities also reflects the financing activity of our consolidated funds and VIEs, which primarily include cash inflows from the issuance of debt, net contributions from non-controlling interest in consolidated entities, proceeds from issuance of securities of a SPAC, partially offset by payment of underwriting discounts and cash outflows for the principal repayment of debt.
Future Debt Obligations
The Company had long-term debt of $2.8 billion at June 30, 2022, which includes notes with maturities in 2024, 2026, 2029, 2030, 2048 and 2050. See note 11 to the condensed consolidated financial statements for further information regarding the
Company’s debt arrangements.
Contractual Obligations, Commitments and Contingencies
For a summary and a description of the nature of the Company’s commitments, contingencies and contractual obligations, see note 15 to the condensed consolidated financial statements and “—Contractual Obligations, Commitments and Contingencies.”The Company’s commitments are primarily fulfilled through cash flows from operations and (to a limited extent) through borrowings and equity issuances as described in notes 11 and 13 to the condensed consolidated financial statements, respectively.
Consolidated Funds and VIEs
The
Company manages its liquidity needs by evaluating unconsolidated cash flows; however, the Company’s condensed consolidated financial statements reflect the financial position of Apollo as well as Apollo’s consolidated funds and VIEs (including SPACs). The primary sources and uses of cash at Apollo’s consolidated funds and VIEs include: (a) raising capital from their investors, which have been reflected historically as non-controlling interests of the consolidated subsidiaries in our condensed consolidated financial statements, (b) using capital to make investments, (c) generating cash flows from operations through distributions, interest and the realization of investments, (d) distributing cash flow to investors, (e) issuing debt to finance investments (CLOs) and (f) raising capital through
SPAC vehicles for future acquisition of targeted entities.
Other Liquidity and Capital Resource Considerations
Future Cash Flows
Our ability to execute our business strategy, particularly our ability to increase our AUM, depends on our ability to establish new funds and to raise additional investor capital within such funds. Our liquidity will depend on a number of factors, such as
our ability to project our financial performance, which is highly dependent on the funds we manage and our ability to manage our projected costs,
fund performance, access to credit facilities, compliance with existing credit agreements, as well as industry and market trends. Additionally, during economic downturns, the funds we manage may experience cash flow issues or liquidate entirely. In these situations, the Company may be asked to reduce or eliminate the management fees and performance fees charged, which could adversely impact our cash flow in the future.
An increase in the fair value of underlying portfolio companies of the funds we manage, by contrast, could favorably impact our liquidity through higher management fees where the management fees are calculated based on the net asset value, gross assets or adjusted assets. Additionally, higher performance fees not yet realized would generally result when investments appreciate over their cost basis which would not have an impact
on the Company’s cash flow until realized.
Consideration of Financing Arrangements
As noted above, in limited circumstances, the Company may issue debt or equity to supplement its liquidity. The decision to enter into a particular financing arrangement is made after careful consideration of various factors including the Company’s cash flows from operations, future cash needs, current sources of liquidity, demand for the Company’s debt or equity, and prevailing interest rates.
Revolver Facility
Under
the AMH Credit Facility, the Company may borrow in an aggregate amount not to exceed $750 million and may incur incremental facilities in an aggregate amount not to exceed $250 million plus additional amounts so long as the Borrower is in compliance with a net leverage ratio not to exceed 4.00 to 1.00. Borrowings under the AMH Credit Facility may be used for working capital and general corporate purposes, including without limitation, permitted acquisitions. The AMH Credit Facility has a final maturity date of November 23, 2025.
Dividends
Although the Company currently expects to pay dividends on our Preferred shares and may pay dividends on our common stock
in the future, we may not pay dividends if, among other things, we do not have the cash necessary to pay the dividends. To the extent we do not have cash on hand sufficient to pay dividends, we may have to borrow funds to pay dividends, or we may determine not to pay dividends. The declaration, payment and determination of the amount of our dividends are at the sole discretion of our board of directors.
The tax receivable agreement provides for the payment to the Former Managing Partners and Contributing Partners of 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income taxes that AGM and its subsidiaries realizes subject to the agreement. For more information regarding the tax receivable agreement, see note 14 to the condensed consolidated financial statements.
AOG Unit Payment
On December 31, 2021, holders of AOG Units (other than Athene and the Company) sold and transferred a portion of such AOG Units to APO Corp., a consolidated subsidiary of the
Company, in exchange for an amount equal to $3.66 multiplied by the total number of AOG Units held by such holders immediately prior to such transaction (such payment, the “AOG Unit Payment”). The remainder of the AOG Units held by such holders were exchanged for shares of HoldCo common stock concurrently with the closing of the Mergers on January 1, 2022.
As of June 30, 2022, the outstanding payable amount in connection with the AOG Unit Payment was $438 million, payable in equal installments through December 31, 2024. See note 14 for more information.
Athora
On April 14, 2017, Apollo made a commitment of €125 million to purchase
new Class B-1 equity interests in Athora, a strategic platform that acquires and reinsures traditional closed life insurance policies and provides capital and reinsurance solutions to insurers in Europe which, as of April 2020 was fully drawn. In January 2018, Apollo purchased Class C-1 equity interests in Athora that represent a profits interest in Athora which, upon meeting certain vesting triggers, will be convertible by Apollo into additional Class B-1 equity interests in Athora.
In connection with Athora’s acquisition of VIVAT N.V., Apollo exercised its preemptive rights and made an additional incremental commitment of approximately €58 million to
purchase new Class B-1 equity interests in Athora. In addition, in April 2020, Apollo purchased Class C-2 equity interests in Athora that represent a profits interest in Athora which, upon meeting certain vesting triggers, will be convertible by Apollo into additional Class B-1 equity interests in Athora.
In November 2021, Apollo made an additional commitment to purchase up to €120 million of new Class B-1 equity interests in Athora, to be drawn in connection with three separate offerings over a period of three years, with a commitment of up to €30 million in 2021, up to €40 million in 2022 and up to €50 million in 2023. Athora’s other common shareholders may exercise preemptive rights to acquire common shares in connection with each offering and any such exercise will reduce the total amount of new Class B-1 equity interests ultimately purchased by Apollo. In connection with the 2021 offering, Apollo acquired approximately
€21.9 million of new Class B-1 equity interests. In addition, Apollo purchased Class C-3 equity interests in Athora in connection with the 2021 offering that represent a profits interest in Athora which, upon meeting certain vesting triggers, will be convertible by Apollo into additional Class B-1 equity interests in Athora. The remaining commitments are drawable in four installments between 2022 and 2024.
In December 2021, Apollo committed an additional €250 million to purchase new Class B-1 equity interests to support Athora’s ongoing growth initiatives, of which €180 million was drawn as of December 31, 2021. Apollo expects the remaining €70 million will be drawn in 2022, pending regulatory approvals.
Apollo and Athene are minority investors in Athora with a long term strategic relationship. Through its share ownership, Apollo
has approximately 19.9% of the total voting power in Athora, and Athene holds shares in Athora representing 10% of the total voting power in Athora. In addition, Athora shares held by funds and other accounts managed by Apollo represent, in the aggregate, approximately 15.1% of the total voting power in Athora.
For more information regarding unfunded general partner commitments, see “—Contractual Obligations, Commitments and Contingencies.”
Fund Escrow
As of June 30, 2022, the remaining investments and escrow cash of ANRP II was valued at 94% of the fund’s unreturned capital which was below the required escrow ratio of 115%. As a result, the fund is required to place in escrow current and future performance fee distributions to the general partner until the specified return ratio
of 115% is met (at the time of a future distribution) or upon liquidation. Realized performance fees currently distributed to the general partner are limited to potential tax distributions and interest on escrow balances per the fund’s partnership agreement.
Clawback
Performance fees from certain of the funds we manage are subject to contingent repayment by the general partner in the event of future losses to the extent that the cumulative performance fees distributed from inception to date exceeds the amount computed as due to the general partner at the final distribution. See “—Overview of Results of Operations—Performance Fees” for the maximum performance fees subject to potential reversal by each fund.
Indemnification Liability
The
Company recorded an indemnification liability in the event that the Former Managing Partners, Contributing Partners and certain investment professionals are required to pay amounts in connection with a general partner obligation to return previously distributed performance fees. See note 14 to the condensed consolidated financial statements for further information regarding the Company’s indemnification liability.
Investment Management Agreements - ISG
The Company provides asset management and advisory services to Athene as described in note 14 to the condensed consolidated financial statements.
The base management fee covers a range of investment services that
Athene receives from the Company, including investment management, asset allocation, mergers and acquisition asset diligence and certain operational support services such as investment compliance, tax, legal and risk management support, among others. Commensurate to the prior fee agreement, the amended fee agreement provides for a possible payment by the Company to Athene, or a possible payment by Athene to the Company, equal to 0.00625% of the Incremental Value as of the end of each quarter, depending upon the percentage of Athene’s investments that consist of core assets and core plus assets. In furtherance of yield support for Athene, if more than 60% of Athene’s invested assets which are subject to the sub-allocation
fees are invested in core and core plus assets, Athene
will receive a 0.00625% fee reduction on the Incremental Value. As an incentive for differentiated asset management, if less than 50% of Athene’s invested assets which are subject to the sub-allocation fee are invested in core and core plus assets, thereby reflecting a higher allocation toward assets with the highest alpha-generating abilities, Athene will pay an additional fee of 0.00625% on Incremental Value.
Critical Accounting Estimates
and Policies
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates. A summary of our significant accounting policies is presented in note 2 to our condensed consolidated financial statements and should be read in conjunction with our significant accounting policies described in note 2 of our consolidated financial statements in our 2021 Annual Report.
The following is a summary of our accounting policies
that are affected most by judgments, estimates and assumptions.
•Consolidation of VIEs
•Revenue Recognition
◦Performance Fees within Investment Income
◦Management Fees
•Investments, at fair value
•Fair value of financial instruments
•Income taxes
The above critical accounting estimates and judgments are discussed in detail in ”Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting
Estimates and Policies” of our 2021 Annual Report.
Recent Accounting Pronouncements
A list of recent accounting pronouncements that are relevant to Apollo and its industry is included in note 2 to our condensed consolidated financial statements.
Contractual Obligations, Commitments and Contingencies
The Company’s material contractual obligations consisted of lease obligations, contractual commitments as part of the ongoing operations of the funds, debt obligations, and
AOG Unit Payments. Fixed and determinable payments due in connection with these obligations are as follows as of June 30, 2022:
Remaining 2022
2023
- 2024
2025 - 2026
2027 and Thereafter
Total
(in thousands)
Operating lease obligations(1)
$
31,615
$
139,196
$
134,610
$
545,650
$
851,071
Other
long-term obligations(2)
20,198
5,141
249
—
25,588
AMH Credit Facility(3)
338
1,350
611
—
2,299
Debt
obligations(3)
59,379
742,602
701,256
2,570,778
4,074,015
AOG Unit Payment (4)
87,633
350,534
—
—
438,167
Obligations
$
199,163
$
1,238,823
$
836,726
$
3,116,428
$
5,391,140
(1)
Operating lease obligations excludes $197.9 million of other operating expenses associated with operating leases.
(2) Includes (i) payments on management service agreements related to certain assets and (ii) payments with respect to certain consulting agreements entered into by the Company. Note that a significant portion of these costs are reimbursable by funds.
(3) See note 11 of the condensed consolidated financial statements for further discussion of these debt obligations.
(4) See note 14 to the condensed consolidated financial statements for more information
regarding the AOG Unit Payment.
Note: Due to the fact that the timing of certain amounts to be paid cannot be determined or for other reasons discussed below, the following contractual commitments have not been presented in the table above.
(i)As noted previously, we have entered into a tax receivable agreement with our Former Managing Partners and Contributing Partners which requires us to pay to our Former Managing Partners and Contributing Partners 85% of any tax savings received by AGM and its
subsidiaries
from our step-up in tax basis. The tax savings achieved may not ensure that we have sufficient cash available to pay this liability and we might be required to incur additional debt to satisfy this liability.
(ii)Debt amounts related to the consolidated VIEs are not presented in the table above as the Company is not a guarantor of these non-recourse liabilities.
(iii)In connection with the Stone Tower acquisition, the Company agreed to pay the former owners of Stone Tower a specified percentage of any future performance fees earned from certain of the Stone Tower funds, CLOs and strategic investment accounts. This contingent consideration liability is remeasured
to fair value at each reporting period until the obligations are satisfied. See note 15 to the condensed consolidated financial statements for further information regarding the contingent consideration liability.
(iv)Commitments from certain of our subsidiaries to contribute to the funds we manage and certain related parties.
Commitments
Certain of our management companies and general partners are committed to contribute to the funds we manage and certain related parties. While a small percentage of these amounts are funded by us, the majority of these amounts have historically been funded by our related parties, including certain of our employees and certain Apollo funds. The table below presents the commitment and remaining
commitment amounts of Apollo and its related parties and the commitment and remaining commitment amounts of Apollo only (excluding related parties) for each fund as of June 30, 2022 (in millions):
Fund
Apollo and Related Party Commitments
Apollo
Only (Excluding Related Party) Commitments
Apollo and Related Party Remaining Commitments
Apollo Only (Excluding Related Party) Remaining Commitments
Yield:
Apollo Origination Partners
$
1,489.9
$
19.9
$
354.6
$
8.4
Athora(1)
1,474.0
476.6
73.4
73.4
Apollo
Strategic Origination Partners
6,121.2
121.2
5,834.0
115.5
Other Yield
7,048.2
251.2
3,003.9
28.4
Total
Yield
16,133.3
868.9
9,265.9
225.7
Hybrid:
HVF II
1,509.7
10.1
1,222.5
8.2
HVF
I
896.5
8.7
238.4
1.6
FCI IV
222.5
21.0
203.6
19.2
SCRF IV
446.1
0.1
293.4
0.1
Accord
V
141.3
22.2
90.4
13.9
Accord IV
246.2
20.0
135.3
19.4
Accord+
697.7
39.4
394.5
22.3
Apollo
Infrastructure Opportunities Fund II
607.6
47.6
505.0
38.5
Apollo Infrastructure Opportunities Fund I(3)
322.8
9.0
85.8
2.5
Other
Hybrid
8,792.8
451.5
2,236.6
144.5
Total Hybrid
13,883.2
629.6
5,405.5
270.2
Equity:
Fund
IX
1,914.5
34.4
822.9
9.0
Fund VII
467.2
178.1
6.7
3.7
ANRP III
680.1
10.1
428.0
6.4
EPF
IV(1)
434.7
34.7
404.2
32.2
EPF III(1)
582.9
1.5
175.5
0.1
EPF
II(1)
409.2
60.2
89.2
17.7
EPF I(1)
281.6
18.6
45.3
4.2
U.S.
RE Fund III(2)
418.3
6.8
250.2
4.2
U.S. RE Fund II(2)
746.7
4.9
158.6
0.9
U.S.
RE Fund I(2)
433.9
16.3
25.2
2.5
Asia RE Fund II(2)
918.9
4.6
714.4
3.5
Asia
RE Fund I(2)
365.6
8.4
161.1
3.0
Other Equity
7,405.9
139.7
1,183.1
34.3
Total
Equity
15,059.5
518.3
4,464.4
121.7
Total
$
45,076.0
$
2,016.8
$
19,135.8
$
617.6
(1)
Apollo’s commitment in these funds is denominated in Euros and translated into U.S. dollars at an exchange rate of €1.00 to $1.05 as of June 30, 2022.
(2) Figures for U.S. RE Fund I include base, additional, and co-investment commitments. A co-investment vehicle within U.S. RE Fund I is denominated in pound sterling and translated into U.S. dollars at an exchange rate of Ł1.00 to $1.22 as of June 30, 2022. Figures for U.S. RE Fund II, U.S. RE Fund III, Asia RE Fund I and Asia RE Fund II include co-investment commitments.
(3) Figures for AIOF I include Apollo Infra Equity U.S. Fund, L.P. and Apollo Infra Equity International Fund, L.P. commitments.
The AMH credit facility, 2024 Senior Notes, 2026 Senior Notes, 2029 Senior Notes, 2030 Senior Notes, 2048 Senior Notes and the 2050 Subordinated Notes will have future impacts on our cash uses. See note 11 of our condensed consolidated financial statements for information regarding the Company’s debt arrangements.
Contingent Obligation
Performance fees with respect to certain funds are subject to reversal in the event of future losses to the extent of the cumulative performance fees recognized in income to date. See note 15 of our condensed consolidated financial statements for a description of our contingent obligation.
One of the
Company’s subsidiaries, AGS, provides underwriting commitments in connection with securities offerings of related parties of Apollo, including portfolio companies of the funds Apollo manages, as well as third parties. As of June 30, 2022 and December 31, 2021, there were no open underwriting commitments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our predominant exposure to market risk is related to our role as investment manager and general partner for the funds we manage and the sensitivity to movements in the fair value of their investments
and resulting impact on performance fees and management fee revenues. Our direct investments in the funds also expose us to market risk whereby movements in the fair values of the underlying investments will increase or decrease both net gains (losses) from investment activities and income (loss) from equity method investments. A description of our market risk exposures may be found under Part II—Item 7A. Quantitative and Qualitative Disclosures About Market Risk of our 2021 Annual Report.
There have been no material changes to our market risk exposures from those previously disclosed in our 2021 Annual Report.
ITEM 4. CONTROLS AND PROCEDURES
We maintain “disclosure controls and procedures”, as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Co-Presidents and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives.
Our management, including our Co-Presidents and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Co-Presidents and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective at the reasonable assurance level to accomplish their objectives of ensuring that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information
is accumulated and communicated to our management, including our Co-Presidents and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
No changes in our internal control over financial reporting (as such term is defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) occurred during our most recent quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
See note 15 to our condensed consolidated financial statements for a summary of the Company’s legal proceedings.
ITEM 1A.RISK FACTORS
For a discussion of our potential risks and uncertainties, see the information under the heading "Risk Factors" in our 2021 Annual Report, which is accessible on the Securities and Exchange Commission's website
at www.sec.gov. The risks described in our 2021 Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes to the risk factors disclosed in our 2021 Annual Report, except for the following:
Many of our funds invest in relatively high-risk, illiquid assets and we may fail to realize any profits from these assets for a considerable period of time or lose some or all of the principal amount we invest in these assets if we are required to sell invested assets at a loss at inopportune times or in response to changes in applicable rules and regulations.
Many of our funds invest in securities or other financial instruments that are not publicly traded or are otherwise
viewed as “illiquid.” In many cases, our funds may be prohibited by contract or by applicable securities laws from selling such securities for a period of time. Our funds will generally not be able to sell these securities publicly unless their sale is registered under applicable securities laws, or unless an exemption from such registration requirements is available. The ability of many of our funds, particularly our private equity funds, to dispose of investments is heavily dependent on the public equity markets, inasmuch as the ability to realize value from an investment may depend upon the ability to complete an IPO of the portfolio company in which such investment is held. Furthermore, large holdings even of publicly traded equity securities can often be disposed of only over a substantial period of time, exposing the investment returns to risks of downward movement
in market prices during the disposition period. Moreover, because the investment strategy of many of our funds often entails our having representation on public portfolio company boards, our funds may be restricted in their ability to affect such sales during certain time periods. Accordingly, our funds may be forced, under certain conditions, to sell securities at a loss.
Further, governmental and regulatory authorities periodically review legislative and regulatory initiatives, and may promulgate new or revised, or adopt changes in the interpretation and enforcement of existing, rules and regulations at any time that may impact our investments. For example, Rule 15c2-11 under the Exchange Act governs the submission of quotes into quotation systems by broker-dealers and has historically been applied to the over-the-counter equity markets. However, the SEC recently stated that it intends to apply the rule to fixed income markets,
potentially restricting the ability of market participants to publish quotations for applicable fixed income securities after January 3, 2023. Such change in regulatory requirements could disrupt market liquidity, make it more difficult for us to source and invest in attractive private investments, and cause securities in investment portfolios of the funds we manage that are not publicly traded to lose value, any of which could have a material and adverse effect on our business, financial condition or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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Certain information contained in this exhibit has been omitted because it is not material and is the type that the registrant treats as private or confidential.
The agreements and other documents
filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
