Apollo Global ManagementAPO

Apollo reported adjusted net income of $2.11 per share, just under the $2.16 analysts expected. While the company is well-known for private equity, its real engine now is Athene, its retirement services arm. This business earns a "spread," which is the difference between what it pays out to policyholders and what it earns by investing those premiums. These insurance earnings and steady management fees rose, helping to carry the firm while it waited for better prices to sell its older private equity holdings.

Total assets under management grew to $1.05 trillion, keeping the firm on track for its $1.5 trillion goal. The company also originated $74 billion in new loans during the quarter. This ability to create its own high-quality debt for its insurance arm to hold is the core of its strategy. Even with a small earnings miss, the business model of using permanent insurance capital to fund private lending remains intact.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• Assets under management surge: Total assets under management reached $1.05 trillion, a 25% increase from a year ago. This growth was fueled by $298 billion in total new money coming in over the last twelve months, which helps the company earn more fees as it puts that capital to work.
• Fee income hits record: Earnings from management fees rose 25% to $785 million this quarter, driven by new capital from large institutions and wealthy individual investors. The company also improved its fee margin by 120 basis points, meaning it is becoming more efficient at turning these fees into actual profit.
• Retirement business gains scale: The retirement division, which handles insurance and annuities, grew its spread earnings by 7% to $877 million compared to last year. This part of the business manages $314 billion in net invested assets and earns money on the difference between what it pays to policyholders and what it earns on its own investments.
• Record lending activity: New loan origination reached $74 billion for the quarter, contributing to a massive $317 billion total over the last year. This is the lifeblood of the company, as creating these private loans provides the high quality investments needed to back its retirement and insurance products.
• Capital returned to owners: Management distributed over $1 billion in dividends to shareholders and spent $285 million on opportunistic share repurchases over the last twelve months. These moves demonstrate that the business is generating enough extra cash to reward long term owners while still spending $485 million to grow for the future.
• Road ahead for performance fees: While current performance fees of $130 million are lower than previous periods, the company has built up a record $82 billion in dry powder, which is money waiting to be invested. As market conditions improve for selling companies, Apollo expects these stored investments to eventually drive higher profit through its $210 billion in performance fee generating assets.

Our take: A strong quarter that proves Apollo is successfully transitioning from a private equity firm into a massive financial engine. The 25% growth in fee-based earnings and record loan origination show that the business can scale quickly without losing quality. This quarter reinforces our view that its retirement and lending model is built for the long haul.