Apollo Reports Strong Second Quarter; Benefits From Increase in Athene Fair Value

Apollo reported a strong second quarter with healthy levels of investing activity, solid fund performance, and a good recovery in incentive fees, owing to an 20% increase in its fair value for Athene (more than reversing a 11% decline from last quarter). We plan to maintain our $18 fair value estimate and narrow moat rating. Broadly, Apollo appears to have taken advantage of “selling everything that’s not nailed down,” per Leon Black’s comments in April 2013, as realizations have been low across Apollo’s portfolio in recent quarters, while it has been ramping up investment activity as it sees opportunities. In short, this is exactly what it has been doing for decades. We do think this will lead to stronger fund performance and build the next cycle of realizations down the road, ultimately driving Apollo’s financial performance to more normalized levels.