Apollo Delivers Continued Improvement; Strong Inflows in Third Quarter

Apollo delivered a solid third quarter amid continued improvement in many areas. We don’t expect to make a material change in our $18 fair value estimate and narrow moat rating. While distributable earnings were essentially flat from last year at $149 million versus $143 million, we’d note that it obscures the shift in earnings toward management fees, as management fee income improved to $148 million versus $96 million last year. Thus, when incentive income rebounds, Apollo is on a higher trajectory than before with a stable income stream. Driving the improvement in management fee income has been a very strong level of inflows at $40 billion over the past 12 months, including $7.2 billion in the last quarter, mostly due to $32 billion in new credit assets under management compared with $14 billion overall in the prior 12 months. Similarly, investing activity has jumped to $4.3 billion for the quarter and $16.5 billion for the past 12 months compared with $11.7 billion the prior 12 months. Accordingly, we’ve seen carry-generating AUM improve to $51.4 billion from $28 billion over the past year, with another $8.3 billion in AUM close to generating incentive income. Broadly, this suggests a rapid improvement in earnings for Apollo in 2017 and 2018, as we expect earnings to sharply increase over this time frame.