Apollo Global Management, Inc. (new) · NYSE:APO
Apollo Global Management, Inc. (new) — Apollo Global Management — RBC Financial Services Conference 2018
32 slides from Apollo Global Management, Inc. (new)'s conference presentation, Mar 6, 2018
Slide 1: RBC Financial Services Conference
RBC Financial Services Conference March 6, 2018 Information contained herein is as of December 31, 2017 unless otherwise noted. Not for distribution in whole or in part without the express consent of Apollo Global Management, LLC. It should not be assumed that investments made in the future will be
Slide 2: Forward Looking Statements & Other Important Disclosures
Forward Looking Statements & Other Important Disclosures This presentation 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 “Exch
Slide 3: Observations within the current market environment
Observations within the current market environment
Slide 4: Global Macro Dynamics Remain Solid
Global Macro Dynamics Remain Solid United States Eurozone Japan China Stronger GDP Growth 2016 2017 2.5% 6.9% 2.3% 1.6% 6.7% 1.8% 1.5% 0.9% Signs of Inflation Picking Up One Year Ago Three Months Prior Today 1.9% 1.2% 1.5% 1.1% 1.4% 1.0% 2.1% 0.9% 1.6% 1.5% 0.7% 0.3% Improving Unemployment One Year
Slide 5: Recent Market Sell-off is Consistent with Historical Cycles
Recent Market Sell-off is Consistent with Historical Cycles Equity Markets Sell-off, but US Treasury Yields Rise Volatility Spikes, then Recedes Remain Flat YTD US 10-Year yields are approaching 3%, Despite recent sell-off, equities are still trading at YE The recent spike in volatility appears less
Slide 6: Signs of Inflation, But Still Below Fed's Target
Signs of Inflation, But Still Below Fed’s Target Wage Inflation Nearing 3% Inflation Finally Set to Pick Up Wage inflation rose to 2.9% in the January US jobs report, Core PCE, excluding energy and food prices, has begun to rise and is set its highest level this cycle to continue its climb, projecte
Slide 7: Equity Valuations Seemingly Elevated, but are Skewed by Growth in Tech
Equity Valuations Seemingly Elevated, but are Skewed by Growth in Tech; Credit Yields Starting to Inflect US P/E Multiples Appear Elevated, but Look Much Closer to Average Adjusting for Tech Valuations 25.0x S&P 500 P/E S&P P/E multiples reached a high of ~20.0x in January 2018, but fell to ~17.4x A
Slide 8: Private Equity Multiples Remain at All-Time Highs
Private Equity Multiples Remain at All-Time Highs Private Equity valuations have surpassed pre-Crisis levels U.S. and European LBO Purchase Price Multiples U.S. and European LBO Leverage Levels Current multiple is 18% higher than average 11.0x 7.0x 10.7x 10.4x 6.7x 10.3x 10.3x 10.1x 10.2x 6.5x 10.
Slide 9: Transition from Quantitative Easing to Tightening Will Push Rates Higher
Transition from Quantitative Easing to Tightening Will Push Rates Higher and Affect Valuations Following years of coordinated global easing which has buoyed the markets, accommodative monetary policy may be coming to an end – Global central bank balance sheets had been growing to date – However, a
Slide 10: The Market Does Not Believe a Recession is Imminent
The Market Does Not Believe a Recession is Imminent Recession Probability in the Next Year Remains Low 120% Length of Past US Expansions Since WWII Current (2009-Present) ~9 years 100% Average ~5 years Longest (1991-2001) ~10 years Shortest (1980-1981) <1 year 80% 60% 40% 20% 15% 0% 2008 2009 2010 2
Slide 11: Tail Risks are Increasing
Tail Risks are Increasing Central Banks Shift from Easy to More Difficult Financial Conditions Increased Inflation Political and Geopolitical Surprises / Instability Recession 11
Slide 12: So how is Apollo positioned within this backdrop?
So how is Apollo positioned within this backdrop?
Slide 13: Apollo is a Leading Alternative Investment Manager
Apollo is a Leading Alternative Investment Manager Apollo has a well-established, differentiated franchise cultivated over nearly three decades $249 Total Assets Under Management(1) billion $100+ AUM in Permanent Capital Vehicles billion 39% Gross IRR in Private Equity Since 1990(2) $164 Largest Alt
Slide 14: Apollo is Benefiting in the Secular Shift from Active to Passive
Apollo is Benefiting in the Secular Shift from Active to Passive Low Cost Traditional Active “Value-Add” “Beta Factories” Managers Managers Passive AUM Active Fund AUM Alternative AUM $11.0tn $5.2tn $1.3tn CAGR 4% $7.3tn CAGR CAGR 16% 14% $0.3tn $1.2tn 2006 2016 2006 2016 2007 2017 Number of Passive
Slide 15: Significant Opportunity for Providers of Alternative Credit
Significant Opportunity for Providers of Alternative Credit Shrinking Bank Balance Sheets Coupled with Broad Base of Investable Assets Searching for Yield Poised to Drive Growth for Alternative Credit Managers $131 trillion Japan $38tn $69 trillion China $40tn + Five Other Public Alternative Asset M
Slide 16: Apollo's AUM has Grown More than 6x in 10 Years
Apollo’s AUM has Grown More than 6x in 10 Years AUM growth over the past ten years driven by the proliferation of yield-oriented permanent capital vehicles and continued success in opportunistic investing businesses Athene ̶ Voya Acquisition Real Assets $249 +$19bn Private Equity +$8bn Billion Other
Slide 17: Permanent Capital Vehicles Driving Yield-Oriented AUM Growth
Permanent Capital Vehicles Driving Yield-Oriented AUM Growth Apollo Total AUM: $249 billion Permanent Capital Vehicles Investor Fund Commitments $102 billion $147 billion $102 $87 Credit and Real Assets Private Equity $75bn $72bn $72 $25 Apollo’s Yield-oriented AUM $7 $147 billion (59% of total) 201
Slide 18: Apollo's Valuation Proposition
Apollo’s Valuation Proposition
Slide 19: Sample Valuation Framework: Sum-of-the-Parts (SOTP)
Sample Valuation Framework: Sum-of-the-Parts (SOTP) FEE RELATED EARNINGS (“FRE”) • Value FRE at a target price-to-earnings multiple that reflects growth and margin profile 1 • ~90% of fee-related revenues from management fees • Growing base of permanent or long-dated funds • Improving margin with op
Slide 20: FRE is a Predictable and Growing Earnings Stream
1 FRE is a Predictable and Growing Earnings Stream Addition of Fund IX Expected to Drive Incremental Fee Related Earnings(1) Growth ($ millions) 800 90% ~$750 Pro-forma impact of Fund IX at commencement 700 80% $624 600 CAGR Elevated deployment- 70% FRE margin 23% related fees and continued $530 pla
Slide 21: Triangulating an Appropriate P/E Multiple for FRE
1 Triangulating an Appropriate P/E Multiple for FRE Revenue Earnings Growth Operating Growth P/E (Trailing 5- Margin (Trailing 5- Multiple Year CAGR) (LTM-4Q’17) Year CAGR) (2018E) Mean of Select Financial Services Companies(1) (Financial Information Services, Analytics, Financial 11% 42% 17% 24.4x
Slide 22: Valuing Fee Related Earnings
1 Valuing Fee Related Earnings 2017 Pro Forma incl. 2017 Fund IX(1) Significant growth expected upon commencement APO FRE (as-reported) $624 million ~$750 million of Fund IX FRE margin(2) 49% >50% DE shares outstanding (mm) 409 409 FRE per share $1.53 $1.83 Equity-based compensation $0.17 $0.17 Opti
Slide 23: Valuing the Balance Sheet
2 Valuing the Balance Sheet Selected Component Balance Per Share (at 12/31/17, in millions) Cash(1) $1,116 Debt ($1,362) Preferred Equity ($264) Net Debt ($510) GP Investments in Funds(2) $977 Athene/AAA(3) $829 Total Investments(4) $1,806 Total Balance Sheet Value $1,296 $3.17 DE Shares Outstanding
Slide 24: Carried Interest is a Series of Cash Flows with Value
3 Carried Interest is a Series of Cash Flows with Value Key Points to Consider: We believe valuing carried interest cash flows in a discounted cash flow construct is the most appropriate valuation approach. Over 27 years, Apollo’s traditional Private Equity funds have generated an aggregate gros
Slide 25: Through-Cycle Carry Income is Attractive
3 Through-Cycle Carry Income is Attractive Total Net Realized Carried Interest Income $1,600 $4.00 $3.68 $1,400 $3.50 $1,200 $2.74 $3.00 $1,000 $2.28 $2.50 $ millions per share $800 $2.00 Mean: $1.50 per share $600 $1.39 $1.50 $400 $0.85 $1.00 $0.54 $200 $0.28 $0.50 $0 $0.00 2012 2013 2014 2015 2016
Slide 26: Carried Interest Modeling Dashboard
3 Carried Interest Modeling Dashboard Below is a set of key assumptions that can be used to value Apollo’s carried interest income potential in a discounted cash flow construct Terminal Carry Eligible Gross Carry Profit Tax Base Case Growth Other Time Horizon AUM Return(2) Rate Share Rate(3) Assum
Slide 27: Sensitizing Key Assumptions Provides Range of Carry Values
3 Sensitizing Key Assumptions Provides Range of Carry Values Private Equity Carry Value: $12 - $18 per share Private Equity Return / Gross IRR Assumption 17% 20% 23% 26% 28% Combined Segments 13% $12.23 $14.83 $17.43 $20.02 $22.62 Return / Gross IRR Assumption Private Equity Discount Rate 14% $11.25
Slide 28: Sample Sum-of-the-Parts (SOTP) Summary
Sample Sum-of-the-Parts (SOTP) Summary 1 FEE RELATED EARNINGS VALUE $28 – $34 • $1.41 FRE per share post equity-comp and taxes • 20-24x P/E multiple based on fundamentals Apollo deems comparable 2 BALANCE SHEET VALUE $3 • Net debt/cash plus investments • 1.0x P/B multiple 3 CARRIED INTEREST INCOME V
Slide 29: SOTP Implies Apollo's Earnings Poised For Growth
SOTP Implies Apollo’s Earnings Poised For Growth Earnings Profile Underpinned by Growing Fee Related Earnings and Likely to Benefit from the Potential for Rising Carry Earnings ILLUSTRATIVE 1 FEE RELATED 3 CARRIED INTEREST EARNINGS POWER EARNINGS INCOME Per Share $3.99 $3.68 Growing in a Stable and
Slide 30: Endnotes & Definitions
Endnotes & Definitions “Assets Under Management”, or “AUM”, refers to 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 account
Slide 31: Endnotes & Definitions (continued)
Endnotes & Definitions (continued) EI represents segment income (loss) before income tax provision excluding transaction-related charges arising from the 2007 private placement, and any acquisitions. Transaction-related charges includes equity-based compensation charges, the amortization of intangib
Slide 32: Endnotes & Definitions (continued)
Endnotes & Definitions (continued) Net IRR of a real assets fund represents the cumulative cash flows in the fund (and not any one investor in the fund), on the basis of the actual timing of cash inflows received from and outflows paid to investors of the fund (assuming the ending net asset value as
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