Athene stake helps buoy earnings at Apollo

The growing insurance holding business, which owns an expanding direct lending platform, helped boost earnings at Apollo Global in Q3. The firm is also seeing increasing separate accounts with LPs and sub-advisory mandates with mutual funds focused on credit.

Apollo Global Management bucked the industry trend posting positive results in the third quarter, thanks in part to a stake in Athene, a growing insurance holding company that the alternative investment firm plans to take public next year.

Athene rose 20 percent in value in the quarter and got into the German market with the acquisition of Delta Lloyd Deutschland AG, a financial services provider that has €4.3 billion in assets. 

Apollo’s economic net income (ENI) for the quarter was $104 million, or $0.26 per share, up from $32 million, or 8 cents per share, a year prior.  

ENI in Apollo’s credit segment rose to $113.7 million in the third quarter, compared with $95.8 million in Q2 and $97.3 million a year ago. The boost “primarily resulted from a rise in the fair value of Athene”, Apollo said in its Q3 earnings report.  

Assets under management for Apollo’s credit unit rose to $113 billion from $108 billion this time last year. However, performance suffered against a difficult market backdrop.  

Total credit net returns were -0.9 percent for the quarter. Inflows, which amounted to $1.7 billion in Q3, were primarily driven by separately managed account additions and a final close of Apollo’s third structured credit recovery fund. The firm raised $450 million in that fund in Q3 towards a final close of about $1.2 billion. 

Speaking on the earnings call, co-founder Joshua Harris said the firm received another $500 million in its strategic relationship with the Texas Teachers Retirement System that went toward a $1 billion credit mandate. The firm also gained two new credit mandates from undisclosed investors in the quarter totalling about $540 million.  

Apollo has also been scaling its sub-advisory mandates with mutual funds. In addition to its account with Oppenheimer, which PDI explored in a feature in this month’s magazine, the firm has set up sub-advisory agreements with Waddell & Reed and K2 Advisors, bringing its sub-advisory credit capital to about $100 million. Harris said he expects these to grow over time. 

Harris added that the firm has now completed several transactions through its Alteri platform, a joint venture set up last year to focus on distressed and stressed retail situations in Europe. 

Apollo has been growing its direct-lending platform through MidCap Financial, a healthcare lender owned by Athene that has been expanding into other industries through its parents.  

The MidCap platform had $3.6 billion in assets as of the 30 September and recently announced its acquisition of an asset portfolio from General Electric and Mubadala. The transaction is expected to close in the fourth quarter and will double the size of MidCap’s balance sheet taking it to about $7 billion. 

“We remain very optimistic about the growth trajectory of this vehicle since MidCap has plenty of runway to continue to grow organically and strategically. Moreover the Mubadala GE transaction will provide another opportunity for MidCap to raise additional equity and debt for this permanent capital vehicle,” Harris said.