10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 10, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022 OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 001-41197
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices) (Zip Code)
(212 ) 515-3200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ||||||||||||||||||||
| ☐ | ||||||||||||||||||||
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act: None
As of May 5, 2022, there were 574,458,506 shares of the registrant’s common stock outstanding.
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| TABLE OF CONTENTS | ||||||||
| Page | ||||||||
| PART I | ||||||||
| ITEM 1. | ||||||||
| ITEM 1A. | ||||||||
| ITEM 2. | ||||||||
| ITEM 3. | ||||||||
| ITEM 4. | ||||||||
| PART II | ||||||||
| ITEM 1. | ||||||||
| ITEM 1A. | ||||||||
| ITEM 2. | ||||||||
| ITEM 3. | ||||||||
| ITEM 4. | ||||||||
| ITEM 5. | ||||||||
| ITEM 6. | ||||||||
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Forward-Looking Statements
This report 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 “Exchange Act”). These statements include, but are not limited to, discussions related to Apollo’s expectations regarding the performance of its business, its liquidity and capital resources and the other non-historical statements in the discussion and analysis. These forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. When used in this report, the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “target” and similar expressions are intended to identify forward-looking statements. Although management believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. These statements are subject to certain risks, uncertainties and assumptions, including risks relating to the impact of COVID-19, the impact of energy market dislocation, market conditions and interest rate fluctuations generally, our ability to manage our growth, our ability to operate in highly competitive environments, the performance of the funds we manage, our ability to raise new funds, the variability of our revenues, earnings and cash flow, our dependence on certain key personnel, the accuracy of management’s assumptions and estimates, our use of leverage to finance our businesses and investments by the funds we manage, Athene’s ability to maintain or improve financial strength ratings, the impact of Athene’s reinsurers failing to meet their assumed obligations, Athene’s ability to manage its business in a highly regulated industry, changes in our regulatory environment and tax status, litigation risks and our ability to recognize the benefits expected to be derived from the merger of Apollo with Athene, among others. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in this quarterly report, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other filings with the SEC. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.
Risk Factors Summary
The following is only a summary of the principal risks that could materially and adversely affect our business, financial condition, results of operations and cash flows, which should be read in conjunction with the detailed description of these risks in “Item 1A. Risk Factors.” Some of the factors that could materially and adversely affect our business, financial condition, results of operations and cash flows include, but are not limited to, the following:
•The effects of the COVID-19 pandemic;
•Difficult political, market or economic conditions;
•Climate change and regulatory and other efforts to reduce climate change;
•The variability in our revenues, earnings and cash flow;
•Our ability to expand into new investment strategies, markets and businesses;
•Our operations in highly competitive industries;
•Our dependence on certain key personnel;
•Harm caused by misconduct by our current and former employees, directors, or others affiliated with us;
•Our reliance on technology and information systems;
•Our dependence on management’s assumptions and estimates;
•Investments by us and the funds we manage in illiquid assets;
•Reliance by us and the funds we manage on the debt financing markets;
•Changes to and replacement of the London Interbank Offered Rate (“LIBOR”);
•Coordination of the businesses of Apollo and Athene;
•Our reliance on our asset management business;
•Our dependence on our retirement services business;
•Our ability to deal appropriately with conflicts of interest;
•Our ability to comply with the extensive regulation of our businesses;
•Increased regulatory focus on our businesses or legislative or regulatory changes;
•Our exposure to third-party litigation;
•Our structure involving complex provisions of tax law; and
•Our ability to react to changes in U.S. and foreign tax law.
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Terms Used in This Report
In this report, references to “Apollo,” “we,” “us,” “our,” and the “Company” for periods (i) on or before December 31, 2021 refer to Apollo Asset Management, Inc. (f/k/a Apollo Global Management, Inc.) (“AAM”) and its subsidiaries unless the context requires otherwise and (ii) subsequent to December 31, 2021, refer to Apollo Global Management, Inc. (f/k/a Tango Holdings, Inc.) (“AGM”) and its subsidiaries unless the context requires otherwise. Moreover, references to “Class A shares” refers to the Class A common stock, $0.00001 par value per share, of AAM prior to the Mergers; “Class B share” refers to the Class B common stock, $0.00001 par value per share, of AAM prior to the Mergers; “Class C share” refers to the Class C common stock, $0.00001 par value per share, of AAM prior to the Mergers; “Series A Preferred shares” refers to the 6.375% Series A preferred stock of AAM both prior to and following the Mergers; “Series B Preferred shares” refers to the 6.375% Series B preferred stock of AAM both prior to and following the Mergers; and “Preferred shares” refers to the Series A Preferred shares and the Series B Preferred shares, collectively, both prior to and following the Mergers. In addition, for periods on or before December 31, 2021, references to “AGM common stock” or “common stock” of the Company refer to Class A shares unless the context otherwise requires, and for periods subsequent to December 31, 2021 refer to shares of common stock, par value $0.00001 per share, of AGM.
The use of any defined term in this report to mean more than one entity, person, security or other item collectively is solely for convenience of reference and in no way implies that such entities, persons, securities or other items are one indistinguishable group. For example, notwithstanding the use of the defined terms "Apollo," "we", “us”, "our" and the “Company” in this report to refer to AGM and its subsidiaries, each subsidiary of AGM is a standalone legal entity that is separate and distinct from AGM and any of its other subsidiaries. Any AGM entity (including any Athene entity) referenced herein is responsible for its own financial, contractual and legal obligations.
| Term or Acronym | Definition | ||||
| AADE | Athene Annuity & Life Assurance Company | ||||
| AAIA | Athene Annuity and Life Company | ||||
| AAME | Apollo Asset Management Europe LLP, a subsidiary of Apollo | ||||
| AAME PC | Apollo Asset Management PC LLP, a wholly-owned subsidiary of AAME | ||||
| AARe | Athene Annuity Re Ltd., a Bermuda reinsurance subsidiary | ||||
| ABS | Asset-backed securities | ||||
| ACRA | Athene Co-Invest Reinsurance Affiliate Holding Ltd., together with its subsidiaries | ||||
| ADIP | Apollo/Athene Dedicated Investment Program, a fund managed by Apollo including third-party capital that invests alongside Athene in certain investments | ||||
| ADS | Apollo Debt Solutions BDC, a non-traded business development company managed by Apollo | ||||
| Advisory | The certain assets advised by ISGI | ||||
| AINV | Apollo Investment Corporation | ||||
| AIOF I | Apollo Infrastructure Opportunities Fund | ||||
| AIOF II | Apollo Infrastructure Opportunities Fund II | ||||
| ALRe | Athene Life Re Ltd., a Bermuda reinsurance subsidiary | ||||
| Alternative investments | Alternative investments, including investment funds, CLO equity positions and certain other debt instruments considered to be equity-like | ||||
| AmeriHome | AmeriHome Mortgage Company, LLC | ||||
| AMH | Apollo Management Holdings, L.P., a Delaware limited partnership, that is an indirect subsidiary of AGM. | ||||
| ANRP I | Apollo Natural Resources Partners, L.P., together with its parallel funds and alternative investment vehicles | ||||
| ANRP II | Apollo Natural Resources Partners II, L.P., together with its parallel funds and alternative investment vehicles | ||||
| ANRP III | Apollo Natural Resources Partners III, L.P., together with its parallel funds and alternative investment vehicles | ||||
| AOCI | Accumulated other comprehensive income (loss) | ||||
| AOG Unit Payment | On December 31, 2021, holders of units of the Apollo Operating Group (“AOG Units”) (other than Athene and the Company) sold and transferred a portion of such AOG Units to APO Corp., a wholly-owned consolidated subsidiary of the Company, in exchange for an amount equal to $3.66 multiplied by the total number of AOG Units held by such holders immediately prior to such transaction. | ||||
| Apollo funds, our funds and references to the funds we manage | The funds (including the parallel funds and alternative investment vehicles of such funds), partnerships, accounts, including strategic investment accounts or “SIAs,” alternative asset companies and other entities for which subsidiaries of Apollo provide investment management or advisory services | ||||
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| Apollo Operating Group | (i) The entities through which we currently operate our asset management business and (ii) one or more entities formed for the purpose of, among other activities, holding certain of our gains or losses on our principal investments in the funds, which we refer to as our “principal investments” | ||||
| APSG I | Apollo Strategic Growth Capital | ||||
| ARI | Apollo Commercial Real Estate Finance, Inc. | ||||
| Asia RE Fund I | Apollo Asia Real Estate Fund I, L.P. | ||||
| Asia RE Fund II | Apollo Asia Real Estate Fund II, L.P. | ||||
| Assets Under Management, or AUM | The assets of the funds, partnerships and accounts to which Apollo provides investment management, advisory, or certain other investment-related services, including, without limitation, capital that such funds, partnerships and accounts have the right to call from investors pursuant to capital commitments. Our AUM equals the sum of: 1. the NAV, plus used or available leverage and/or capital commitments, or gross assets plus capital commitments, of the yield and certain hybrid funds, partnerships and accounts for which we provide investment management or advisory services, other than CLOs, CDOs, and certain perpetual capital vehicles, which have a fee-generating basis other than the mark-to-market value of the underlying assets; for certain perpetual capital vehicles in yield, gross asset value plus available financing capacity; 2. the fair value of the investments of the equity and certain hybrid funds, partnerships and accounts Apollo manages or advise, plus the capital that such funds, partnerships and accounts are entitled to call from investors pursuant to capital commitments, plus portfolio level financings; 3. the gross asset value associated with the reinsurance investments of the portfolio company assets Apollo manages or advises; and 4. the fair value of any other assets that Apollo manages or advises for the funds, partnerships and accounts to which Apollo provides investment management, advisory, or certain other investment-related services, plus unused credit facilities, including capital commitments to such funds, partnerships and accounts for investments that may require pre-qualification or other conditions before investment plus any other capital commitments to such funds, partnerships and accounts available for investment that are not otherwise included in the clauses above. Apollo’s AUM measure includes Assets Under Management for which Apollo charges either nominal or zero fees. Apollo’s AUM measure also includes assets for which Apollo does not have investment discretion, including certain assets for which Apollo earns only investment-related service fees, rather than management or advisory fees. Apollo’s definition of AUM is not based on any definition of Assets Under Management contained in its governing documents or in any management agreements of the funds Apollo manages. Apollo considers multiple factors for determining what should be included in its definition of AUM. Such factors include but are not limited to (1) Apollo’s ability to influence the investment decisions for existing and available assets; (2) Apollo’s ability to generate income from the underlying assets in the funds it manages; and (3) the AUM measures that Apollo uses internally or believe are used by other investment managers. Given the differences in the investment strategies and structures among other alternative investment managers, Apollo’s calculation of AUM may differ from the calculations employed by other investment managers and, as a result, this measure may not be directly comparable to similar measures presented by other investment managers. Apollo’s calculation also differs from the manner in which its affiliates registered with the SEC report “Regulatory Assets Under Management” on Form ADV and Form PF in various ways. Apollo uses AUM, Gross capital deployed and Dry powder as performance measurements of its investment activities, as well as to monitor fund size in relation to professional resource and infrastructure needs. |
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| Athene | Athene Holding Ltd. (“Athene Holding” or “AHL” together with its subsidiaries), a leading financial services company specializing in retirement services that issues, reinsures and acquires retirement savings products designed for the increasing number of individuals and institutions seeking to fund retirement needs, and to which Apollo, through its consolidated subsidiary ISG, provides asset management and advisory services. | ||||
| Athora | Athora Holding, Ltd. (“Athora Holding”, together with its subsidiaries), a strategic platform that acquires or reinsures blocks of insurance business in the German and broader European life insurance market (collectively, the “Athora Accounts”). The Company, through ISGI, provides investment advisory services to Athora. Athora Non-Sub-Advised Assets includes the Athora assets which are managed by Apollo but not sub-advised by Apollo nor invested in Apollo funds or investment vehicles. Athora Sub-Advised includes assets which the Company explicitly sub-advises as well as those assets in the Athora Accounts which are invested directly in funds and investment vehicles Apollo manages. | ||||
| AUM with Future Management Fee Potential | The committed uninvested capital portion of total AUM not currently earning management fees. The amount depends on the specific terms and conditions of each fund. | ||||
| AUSA | Athene USA Corporation | ||||
| BMA | Bermuda Monetary Authority | ||||
| BSCR | Bermuda Solvency Capital Requirement | ||||
| CDI | California Department of Insurance | ||||
| CDO | Collateralized debt obligation | ||||
| CLO | Collateralized loan obligation | ||||
| CMBS | Commercial mortgage-backed securities | ||||
| CML | Commercial mortgage loans | ||||
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| Contributing Partners | Partners and their related parties (other than Messrs. Leon Black, Joshua Harris and Marc Rowan, our co-founders) who indirectly beneficially owned Apollo Operating Group units. | ||||
| Cost of crediting | The interest credited to the policyholders on our fixed annuities, including, with respect to our fixed indexed annuities, option costs, as well as institutional costs related to institutional products, presented on an annualized basis for interim periods | ||||
| Cost of funds | Cost of funds includes liability costs related to cost of crediting on both deferred annuities and institutional products, as well as other liability costs. Cost of funds is computed as the total liability costs divided by the average net invested assets for the relevant period and is presented on an annualized basis for interim periods. | ||||
| DAC | Deferred acquisition costs | ||||
| Deferred annuities | Fixed indexed annuities, annual reset annuities, multi-year guaranteed annuities and registered index-linked annuities | ||||
| Dry Powder | The amount of capital available for investment or reinvestment subject to the provisions of the applicable limited partnership agreements or other governing agreements of the funds, partnerships and accounts we manage. Dry powder excludes uncalled commitments which can only be called for fund fees and expenses and commitments from Perpetual Capital Vehicles. | ||||
| DSI | Deferred sales inducement | ||||
| ECR | Enhanced Capital Requirement | ||||
| EPF III | Apollo European Principal Finance Fund III | ||||
| Equity Plan | Refers collectively to the Company’s 2019 Omnibus Equity Incentive Plan and the Company’s 2019 Omnibus Equity Incentive Plan for Estate Planning Vehicles. | ||||
| FABN | Funding agreement backed notes | ||||
| FABR | Funding agreement backed repurchase agreement | ||||
| Fee-Generating AUM | Fee-Generating AUM consists of assets of the funds, partnerships and accounts to which we provide investment management, advisory, or certain other investment-related services and on which we earn management fees, monitoring fees or other investment-related fees pursuant to management or other fee agreements on a basis that varies among the Apollo funds, partnerships and accounts. Management fees are normally based on “net asset value,” “gross assets,” “adjusted par asset value,” “adjusted cost of all unrealized portfolio investments,” “capital commitments,” “adjusted assets,” “stockholders’ equity,” “invested capital” or “capital contributions,” each as defined in the applicable management agreement. Monitoring fees, also referred to as advisory fees, with respect to the structured portfolio company investments of the funds, partnerships and accounts we manage or advise, are generally based on the total value of such structured portfolio company investments, which normally includes leverage, less any portion of such total value that is already considered in Fee-Generating AUM | ||||
| Fee Related Earnings, or FRE | Component of Adjusted Segment Income that is used to assess the performance of the Asset Management segment. FRE is the sum of (i) management fees, (ii) advisory and transaction fees, (iii) fee-related performance fees from indefinite term vehicles, that are measured and received on a recurring basis and not dependent on realization events of the underlying investments and (iv) other income, net, less (a) fee-related compensation, excluding equity-based compensation, (b) non-compensation expenses incurred in the normal course of business, (c) placement fees and (d) non-controlling interests in the management companies of certain funds the Company manages |
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| FIA | Fixed indexed annuity, which is an insurance contract that earns interest at a crediting rate based on a specified index on a tax-deferred basis | ||||
| Fixed annuities | FIAs together with fixed rate annuities | ||||
| Former Managing Partners | Messrs. Leon Black, Joshua Harris and Marc Rowan collectively and, when used in reference to holdings of interests in Apollo or AP Professional Holdings, L.P. includes certain related parties of such individuals | ||||
Gross capital deployment |
The gross capital that has been invested in investments by the funds and accounts we manage during the relevant period, but excludes certain investment activities primarily related to hedging and cash management functions at the firm. Gross capital deployment is not reduced or netted down by sales or refinancings, and takes into account leverage used by the funds and accounts we manage in gaining exposure to the various investments that they have made. |
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| GLWB | Guaranteed lifetime withdrawal benefit | ||||
| GMDB | Guaranteed minimum death benefit | ||||
| Gross IRR of accord series, financial credit investment, structured credit recovery and the European principal finance funds | The annualized return of a fund based on the actual timing of all cumulative fund cash flows before management fees, performance fees allocated to the general partner and certain other expenses. Calculations may include certain investors that do not pay fees. The terminal value is the net asset value as of the reporting date. Non-U.S. dollar denominated (“USD”) fund cash flows and residual values are converted to USD using the spot rate as of the reporting date. In addition, gross IRRs at the fund level will differ from those at the individual investor level as a result of, among other factors, timing of investor-level inflows and outflows. Gross IRR does not represent the return to any fund investor. | ||||
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| Gross IRR of a traditional private equity or hybrid value fund | The cumulative investment-related cash flows (i) for a given investment for the fund or funds which made such investment, and (ii) for a given fund, in the relevant fund itself (and not any one investor in the fund), in each case, on the basis of the actual timing of investment inflows and outflows (for unrealized investments assuming disposition on March 31, 2022 or other date specified) aggregated on a gross basis quarterly, and the return is annualized and compounded before management fees, performance fees and certain other expenses (including interest incurred by the fund itself) and measures the returns on the fund’s investments as a whole without regard to whether all of the returns would, if distributed, be payable to the fund’s investors. In addition, gross IRRs at the fund level will differ from those at the individual investor level as a result of, among other factors, timing of investor-level inflows and outflows. Gross IRR does not represent the return to any fund investor. |
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| Gross IRR of real estate equity, hybrid real estate or infrastructure funds | The cumulative investment-related cash flows in the fund itself (and not any one investor in the fund), on the basis of the actual timing of cash inflows and outflows (for unrealized investments assuming disposition on March 31, 2022 or other date specified) starting on the date that each investment closes, and the return is annualized and compounded before management fees, performance fees, and certain other expenses (including interest incurred by the fund itself) and measures the returns on the fund’s investments as a whole without regard to whether all of the returns would, if distributed, be payable to the fund’s investors. Non-USD fund cash flows and residual values are converted to USD using the spot rate as of the reporting date. In addition, gross IRRs at the fund level will differ from those at the individual investor level as a result of, among other factors, timing of investor-level inflows and outflows. Gross IRR does not represent the return to any fund investor. |
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| Gross Return or Gross ROE of a total return yield fund or the hybrid credit hedge fund | The monthly or quarterly time-weighted return that is equal to the percentage change in the value of a fund’s portfolio, adjusted for all contributions and withdrawals (cash flows) before the effects of management fees, incentive fees allocated to the general partner, or other fees and expenses. Returns for these categories are calculated for all funds and accounts in the respective strategies. Returns over multiple periods are calculated by geometrically linking each period’s return over time. Gross return and gross ROE do not represent the return to any fund investor. |
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| HoldCo | Apollo Global Management, Inc. (f/k/a Tango Holdings, Inc.) | ||||
| HVF I | Apollo Hybrid Value Fund, L.P., together with its parallel funds and alternative investment vehicles | ||||
| HVF II | Apollo Hybrid Value Fund II, L.P., together with its parallel funds and alternative investment vehicles | ||||
| Inflows | (i) At the individual strategy level, subscriptions, commitments, and other increases in available capital, such as acquisitions or leverage, net of inter-strategy transfers, and (ii) on an aggregate basis, the sum of inflows across the yield, hybrid and equity investing strategies. | ||||
| IPO | Initial Public Offering | ||||
| ISG | Apollo Insurance Solutions Group LP | ||||
| ISGI | Refers collectively to AAME and AAME PC | ||||
| Jackson | Jackson Financial, Inc., together with its subsidiaries | ||||
| Management Fee Offset | Under the terms of the limited partnership agreements for certain funds, the management fee payable by the funds may be subject to a reduction based on a certain percentage of such advisory and transaction fees, net of applicable broken deal costs . | ||||
| Merger Agreement | The Agreement and Plan of Merger dated as of March 8, 2021 by and among AAM, AGM, AHL, Blue Merger Sub, Ltd., a Bermuda exempted company, and Green Merger Sub, Inc., a Delaware corporation. | ||||
| Merger Date | January 1, 2022 | ||||
| MidCap | MidCap FinCo Designated Activity Company | ||||
| MMS | Minimum margin of solvency | ||||
| Modco | Modified coinsurance | ||||
| NAIC | National Association of Insurance Commissioners | ||||
| NAV | Net Asset Value | ||||
| Net invested assets | The sum of (a) total investments on the consolidated balance sheets with AFS securities at cost or amortized cost, excluding derivatives, (b) cash and cash equivalents and restricted cash, (c) investments in related parties, (d) accrued investment income, (e) VIE assets, liabilities and noncontrolling interest adjustments, (f) net investment payables and receivables, (g) policy loans ceded (which offset the direct policy loans in total investments) and (h) an allowance for credit losses. Net invested assets includes our economic ownership of ACRA investments but does not include the investments associated with the noncontrolling interest | ||||
| Net investment earned rate | Income from our net invested assets divided by the average net invested assets for the relevant period, presented on an annualized basis for interim periods | ||||
| Net investment spread | Net investment spread measures our investment performance less the total cost of our liabilities, presented on an annualized basis for interim periods | ||||
| Net IRR of accord series, financial credit investment, structured credit recovery and the European principal finance funds | The annualized return of a fund after management fees, performance fees allocated to the general partner and certain other expenses, calculated on investors that pay such fees. The terminal value is the net asset value as of the reporting date. Non-USD fund cash flows and residual values are converted to USD using the spot rate as of the reporting date. In addition, net IRR at the fund level will differ from that at the individual investor level as a result of, among other factors, timing of investor-level inflows and outflows. Net IRR does not represent the return to any fund investor. | ||||
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| Net IRR of a traditional private equity or the hybrid value funds | The gross IRR applicable to the funds, including returns for related parties which may not pay fees or performance fees, net of management fees, certain expenses (including interest incurred or earned by the fund itself) and realized performance fees all offset to the extent of interest income, and measures returns at the fund level on amounts that, if distributed, would be paid to investors of the fund. The timing of cash flows applicable to investments, management fees and certain expenses, may be adjusted for the usage of a fund’s subscription facility. To the extent that a fund exceeds all requirements detailed within the applicable fund agreement, the estimated unrealized value is adjusted such that a percentage of up to 20.0% of the unrealized gain is allocated to the general partner of such fund, thereby reducing the balance attributable to fund investors. In addition, net IRR at the fund level will differ from that at the individual investor level as a result of, among other factors, timing of investor-level inflows and outflows. Net IRR does not represent the return to any fund investor. | ||||
| Net IRR of real estate equity, hybrid real estate and infrastructure funds | 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 of March 31, 2022 or other date specified is paid to investors), excluding certain non-fee and non-performance fee bearing parties, and the return is annualized and compounded after management fees, performance fees, and certain other expenses (including interest incurred by the fund itself) and measures the returns to investors of the fund as a whole. Non-USD fund cash flows and residual values are converted to USD using the spot rate as of the reporting date. In addition, net IRR at the fund level will differ from that at the individual investor level as a result of, among other factors, timing of investor-level inflows and outflows. Net IRR does not represent the return to any fund investor. |
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| Net reserve liabilities | The sum of (a) interest sensitive contract liabilities, (b) future policy benefits, (c) dividends payable to policyholders, and (d) other policy claims and benefits, offset by reinsurance recoverable, excluding policy loans ceded. Net reserve liabilities also includes the reserves related to assumed modco agreements in order to appropriately match the costs incurred in the consolidated statements of operations with the liabilities. Net reserve liabilities is net of the ceded liabilities to third-party reinsurers as the costs of the liabilities are passed to such reinsurers and therefore we have no net economic exposure to such liabilities, assuming our reinsurance counterparties perform under our agreements. Net reserve liabilities is net of the reserve liabilities attributable to the ACRA noncontrolling interest. | ||||
| Net Return or Net ROE of a total return yield fund or the hybrid credit hedge fund | The gross return after management fees, performance fees allocated to the general partner, or other fees and expenses. Returns over multiple periods are calculated by geometrically linking each period’s return over time. Net return and net ROE do not represent the return to any fund investor. |
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| Non-Fee-Generating AUM | AUM that does not produce management fees or monitoring fees. This measure generally includes the following: (i) fair value above invested capital for those funds that earn management fees based on invested capital; (ii) net asset values related to general partner and co-investment interests; (iii) unused credit facilities; (iv) available commitments on those funds that generate management fees on invested capital; (v) structured portfolio company investments that do not generate monitoring fees; and (vi) the difference between gross asset and net asset value for those funds that earn management fees based on net asset value. |
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| NYC UBT | New York City Unincorporated Business Tax | ||||
| NYSDFS | New York State Department of Financial Services | ||||
| Other liability costs | Other liability costs include DAC, DSI and VOBA amortization, change in rider reserves, the cost of liabilities on products other than deferred annuities and institutional products, excise taxes, as well as offsets for premiums, product charges and other revenues | ||||
| Payout annuities | Annuities with a current cash payment component, which consist primarily of single premium immediate annuities, supplemental contracts and structured settlements | ||||
| PCD | Purchased Credit Deteriorated Investments | ||||
| Performance allocations, Performance fees, Performance revenues, Incentive fees and Incentive income | The interests granted to Apollo by a fund managed by Apollo that entitle Apollo to receive allocations, distributions or fees which are based on the performance of such fund or its underlying investments | ||||
8
| Performance Fee-Eligible AUM | AUM that may eventually produce performance fees. All funds for which we are entitled to receive a performance fee allocation or incentive fee are included in Performance Fee-Eligible AUM, which consists of the following: (i) “Performance Fee-Generating AUM”, which refers to invested capital of the funds, partnerships and accounts we manage, advise, or to which we provide certain other investment-related services, that is currently above its hurdle rate or preferred return, and profit of such funds, partnerships and accounts is being allocated to, or earned by, the general partner in accordance with the applicable limited partnership agreements or other governing agreements; (ii) “AUM Not Currently Generating Performance Fees”, which refers to invested capital of the funds, partnerships and accounts we manage, advise, or to which we provide certain other investment-related services, that is currently below its hurdle rate or preferred return; and (iii) “Uninvested Performance Fee-Eligible AUM”, which refers to capital of the funds, partnerships and accounts we manage, advise, or to which we provide certain other investment-related services, that is available for investment or reinvestment subject to the provisions of applicable limited partnership agreements or other governing agreements, which capital is not currently part of the NAV or fair value of investments that may eventually produce performance fees allocable to, or earned by, the general partner. |
||||
| Perpetual Capital | Capital of Perpetual Capital Vehicles that is of indefinite duration, which may be withdrawn under certain conditions. | ||||
| Perpetual Capital Vehicles | (a) Assets that are owned by or related to Athene or Athora but only to the extent that origination or acquisitions of new liabilities exceed the run off driven by maturity or termination of existing liabilities, (b) assets that are owned by or related to MidCap and managed by Apollo, (c) assets of publicly traded vehicles managed by Apollo such as AINV, ARI, AIF, and AFT, in each case that do not have redemption provisions or a requirement to return capital to investors upon exiting the investments made with such capital, except as required by applicable law, (d) assets of ADS, and (e) a publicly traded business development company from which Apollo earns certain investment-related service fees. The investment management agreements of AINV, AIF and AFT have one year terms and the investment management agreement of ADS has an initial term of two years and then is subject to annual renewal. These investment management agreements are reviewed annually and remain in effect only if approved by the boards of directors of such companies or by the affirmative vote of the holders of a majority of the outstanding voting shares of such companies, including in either case, approval by a majority of the directors who are not “interested persons” as defined in the Investment Company Act of 1940, as amended (the “Investment Company Act”). In addition, the investment management agreements of AINV, AIF, AFT and ADS may be terminated in certain circumstances upon 60 days’ written notice. The investment management agreement of ARI has a one year term and is reviewed annually by ARI’s board of directors and may be terminated under certain circumstances by an affirmative vote of at least two-thirds of ARI’s independent directors. The investment management or advisory arrangements between each of MidCap and Apollo, Athene and Apollo and Athora and Apollo, may also be terminated under certain circumstances. The agreement pursuant to which Apollo earns certain investment-related service fees from a non-traded business development company may be terminated under certain limited circumstances |
||||
| Principal Investing Income , or PII | Component of Adjusted Segment Income that is used to assess the performance of the Principal Investing segment. For the Principal Investing segment, PII is the sum of (i) realized performance fees, excluding realizations received in the form of shares, (ii) realized investment income, less (x) realized principal investing compensation expense, excluding expense related to equity-based compensation, and (y) certain corporate compensation and non-compensation expenses | ||||
| Policy loan | A loan to a policyholder under the terms of, and which is secured by, a policyholder’s policy | ||||
| Private equity investments | (i) Direct or indirect investments in existing and future private equity funds managed or sponsored by Apollo, (ii) direct or indirect co-investments with existing and future private equity funds managed or sponsored by Apollo, (iii) direct or indirect investments in securities which are not immediately capable of resale in a public market that Apollo identifies but does not pursue through its private equity funds, and (iv) investments of the type described in (i) through (iii) above made by Apollo funds | ||||
| Realized Value | All cash investment proceeds received by the relevant Apollo fund, including interest and dividends, but does not give effect to management fees, expenses, incentive compensation or performance fees to be paid by such Apollo fund. | ||||
| Redding Ridge | Redding Ridge Asset Management, LLC and its subsidiaries, which is a standalone, self-managed asset management business established in connection with risk retention rules that manages CLOs and retains the required risk retention interests. | ||||
| Redding Ridge Holdings | Redding Ridge Holdings LP | ||||
| Remaining Cost | The initial investment of the fund in a portfolio investment, reduced for any return of capital distributed to date on such portfolio investment | ||||
| Rider reserves | Guaranteed lifetime withdrawal benefits and guaranteed minimum death benefits reserves | ||||
| RMBS | Residential mortgage-backed securities | ||||
| RML | Residential mortgage loan | ||||
| RSUs | Restricted share units | ||||
| SIA | Strategic investment account | ||||
| SPACs | Special purpose acquisition companies | ||||
9
| Spread Related Earnings, or SRE | Component of Adjusted Segment Income that is used to assess the performance of the Retirement Services segment, excluding certain market volatility and certain expenses related to integration, restructuring, equity-based compensation, and other expenses. For the Retirement Services segment, SRE equals the sum of (i) the net investment earnings on Athene’s net invested assets and (ii) management fees earned on the ADIP share of ACRA assets, less (x) cost of funds, (y) operating expenses excluding equity-based compensation and (z) financing costs including interest expense and preferred dividends, if any, paid to Athene preferred stockholders. | ||||
| Surplus assets | Assets in excess of policyholder obligations, determined in accordance with the applicable domiciliary jurisdiction’s statutory accounting principles. | ||||
| Tax receivable agreement | The tax receivable agreement entered into by and among APO Corp., the Former Managing Partners, the Contributing Partners, and other parties thereto | ||||
| TDI | Texas Department of Insurance | ||||
| Total Invested Capital | The aggregate cash invested by the relevant Apollo fund and includes capitalized costs relating to investment activities, if any, but does not give effect to cash pending investment or available for reserves and excludes amounts, if any, invested on a financed basis with leverage facilities | ||||
| Total Value | The sum of the total Realized Value and Unrealized Value of investments | ||||
| Traditional private equity funds | Apollo Investment Fund I, L.P. (“Fund I”), AIF II, L.P. (“Fund II”), a mirrored investment account established to mirror Fund I and Fund II for investments in debt securities (“MIA”), Apollo Investment Fund III, L.P. (together with its parallel funds, “Fund III”), Apollo Investment Fund IV, L.P. (together with its parallel fund, “Fund IV”), Apollo Investment Fund V, L.P. (together with its parallel funds and alternative investment vehicles, “Fund V”), Apollo Investment Fund VI, L.P. (together with its parallel funds and alternative investment vehicles, “Fund VI”), Apollo Investment Fund VII, L.P. (together with its parallel funds and alternative investment vehicles, “Fund VII”), Apollo Investment Fund VIII, L.P. (together with its parallel funds and alternative investment vehicles, “Fund VIII”) and Apollo Investment Fund IX, L.P. (together with its parallel funds and alternative investment vehicles, “Fund IX”). |
||||
| U.S. GAAP | Generally accepted accounting principles in the United States of America | ||||
| U.S. RE Fund I | Apollo U.S. Real Estate Fund I, L.P. | ||||
| U.S. RE Fund II | Apollo U.S. Real Estate Fund II, L.P. | ||||
| U.S. RE Fund III | Apollo U.S. Real Estate Fund III, L.P. | ||||
| U.S. Treasury | United States Department of the Treasury | ||||
| Unrealized Value | The fair value consistent with valuations determined in accordance with GAAP, for investments not yet realized and may include payments in kind, accrued interest and dividends receivable, if any, and before the effect of certain taxes. In addition, amounts include committed and funded amounts for certain investments. | ||||
| Venerable | Venerable Holdings, Inc., together with its subsidiaries | ||||
| VIAC | Venerable Insurance and Annuity Company, formerly Voya Insurance and Annuity Company | ||||
| VIE | Variable interest entity | ||||
| Vintage Year | The year in which a fund’s final capital raise occurred, or, for certain funds, the year of a fund’s effective date or the year in which a fund’s investment period commences pursuant to its governing agreements. | ||||
| VIVAT N.V. | Athora Netherlands N.V. (formerly known as: VIVAT N.V.) | ||||
| VOBA | Value of business acquired | ||||
| VOE | Voting interest entity | ||||
| WACC | Weighted average cost of capital | ||||
10
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index to Condensed Consolidated Financial Statements (unaudited)
11
APOLLO GLOBAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
| (In millions, except share data) | As of March 31, 2022 |
As of December 31, 2021 |
|||||||||
| Assets | |||||||||||
| Asset Management | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash and cash equivalents | |||||||||||
| Investments | |||||||||||
| Assets of consolidated variable interest entities | |||||||||||
| Cash and cash equivalents | |||||||||||
| Investments | |||||||||||
| Other assets | |||||||||||
| Due from related parties | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| Retirement Services | |||||||||||
| Cash and cash equivalents | — | ||||||||||
| Restricted cash and cash equivalents | — | ||||||||||
| Investments | — | ||||||||||
| Investments in related parties | — | ||||||||||
| Assets of consolidated variable interest entities | |||||||||||
| Cash and cash equivalents | — | ||||||||||
| Investments | — | ||||||||||
| Other assets | — | ||||||||||
| Reinsurance recoverable | — | ||||||||||
| Deferred acquisition costs, deferred sales inducements and value of business acquired | — | ||||||||||
| Goodwill | — | ||||||||||
| Other assets | — | ||||||||||
| — | |||||||||||
| Total Assets | $ |
|
$ |
|
|||||||
| (Continued) | |||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements. | |||||||||||
12
APOLLO GLOBAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
| (In millions, except share data) | As of March 31, 2022 |
As of December 31, 2021 |
|||||||||
| Liabilities and Equity | |||||||||||
| Liabilities | |||||||||||
| Asset Management | |||||||||||
| Accounts payable, accrued expenses, and other liabilities | $ | $ | |||||||||
| Due to related parties | |||||||||||
| Debt | |||||||||||
| Liabilities of consolidated variable interest entities | |||||||||||
| Debt, at fair value | |||||||||||
| Notes payable | |||||||||||
| Other liabilities | |||||||||||
| Retirement Services | |||||||||||
| Interest sensitive contract liabilities | — | ||||||||||
| Future policy benefits | — | ||||||||||
| Debt | — | ||||||||||
| Payables for collateral on derivatives and securities to repurchase | — | ||||||||||
| Other liabilities | — | ||||||||||
| Liabilities of consolidated variable interest entities | |||||||||||
| Debt, at fair value | — | ||||||||||
| Other liabilities | — | ||||||||||
| — | |||||||||||
| Total Liabilities |
|
|
|||||||||
Commitments and Contingencies (note 17) |
|||||||||||
| Redeemable non-controlling interests: | |||||||||||
| Redeemable non-controlling interests | |||||||||||
| Equity | |||||||||||
Series A Preferred Stock, 0 and 11,000,000 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively |
|||||||||||
Series B Preferred Stock, 0 and 12,000,000 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively |
|||||||||||
Class A Common Stock, $0.00001 par value, 0 and 90,000,000,000 shares authorized, 0 and 248,896,649 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively |
|||||||||||
Class B Common Stock, $0.00001 par value, 0 and 999,999,999 shares authorized, 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively |
|||||||||||
Class C Common Stock, $0.00001 par value, 0 and 1 share authorized, 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively |
|||||||||||
Common Stock, $0.00001 par value, 90,000,000,000 shares authorized, 570,353,554 shares issued and outstanding as of March 31, 2022 |
|||||||||||
| Additional paid in capital | |||||||||||
| Retained earnings (accumulated deficit) | ( |
||||||||||
| Accumulated other comprehensive income (loss) | ( |
( |
|||||||||
| Total Apollo Global Management, Inc. Stockholders’ Equity | |||||||||||
| Non-controlling interests | |||||||||||
| Total Equity |
|
|
|||||||||
| Total Liabilities and Equity | $ |
|
$ |
|
|||||||
| (Concluded) | |||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements. | |||||||||||
13
APOLLO GLOBAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Three months ended March 31, | |||||||||||
| (In millions, except per share data) | 2022 | 2021 | |||||||||
| Revenues | |||||||||||
| Asset Management | |||||||||||
| Management fees | $ | $ | |||||||||
| Advisory and transaction fees, net | |||||||||||
| Investment income | |||||||||||
| Incentive fees | |||||||||||
| Retirement Services | |||||||||||
| Premiums | |||||||||||
| Product charges | |||||||||||
| Net investment income | |||||||||||
| Investment related gains (losses) | ( |
||||||||||
| Revenues of consolidated variable interest entities | ( |
||||||||||
| Other revenues | ( |
||||||||||
| ( |
|||||||||||
| Total Revenues | |||||||||||
| Expenses | |||||||||||
| Asset Management | |||||||||||
| Compensation and benefits | |||||||||||
| Interest expense | |||||||||||
| General, administrative and other | |||||||||||
| Retirement Services | |||||||||||
| Interest sensitive contract benefits | ( |
||||||||||
| Future policy and other policy benefits | |||||||||||
| Amortization of deferred acquisition costs, deferred sales inducements and value of business acquired | |||||||||||
| Policy and other operating expenses | |||||||||||
| Total Expenses | |||||||||||
Other income (loss) – Asset Management |
|||||||||||
| Net gains from investment activities | |||||||||||
| Net gains from investment activities of consolidated variable interest entities | |||||||||||
| Other income (loss), net | ( |
( |
|||||||||
| Total other income (loss) | |||||||||||
| Income (loss) before income tax (provision) benefit | ( |
||||||||||
| Income tax (provision) benefit | ( |
||||||||||
| Net income (loss) | ( |
||||||||||
| Net (income) loss attributable to non-controlling interests | ( |
||||||||||
| Net income (loss) attributable to Apollo Global Management, Inc. | ( |
||||||||||
| Preferred stock dividends | ( |
||||||||||
| Net income (loss) attributable to Apollo Global Management, Inc. common stockholders | ( |
||||||||||
| Earnings (loss) per share | |||||||||||
| Net income (loss) attributable to common stockholders - Basic | $ | ( |
$ | ||||||||
| Net income (loss) attributable to common stockholders - Diluted | $ | ( |
$ | ||||||||
| Weighted average shares outstanding – Basic | |||||||||||
| Weighted average shares outstanding – Diluted | |||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements. | |||||||||||
14
APOLLO GLOBAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| Three months ended March 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Net income (loss) | $ | ( |
$ | ||||||||
| Other comprehensive income (loss), before tax | |||||||||||
| Unrealized investment gains (losses) on available-for-sale securities, net of offsets | ( |
||||||||||
| Unrealized gains (losses) on hedging instruments | ( |
||||||||||
| Foreign currency translation and other adjustments | ( |
( |
|||||||||
| Other comprehensive income (loss), before tax | ( |
( |
|||||||||
| Income tax expense (benefit) related to other comprehensive income (loss) | ( |
||||||||||
| Other comprehensive income (loss) | ( |
( |
|||||||||
| Comprehensive income (loss) | ( |
||||||||||
| Comprehensive (income) loss attributable to non-controlling interests | ( |
||||||||||
| Comprehensive income (loss) attributable to Apollo Global Management, Inc. | $ | ( |
$ | ||||||||
See accompanying notes to the unaudited condensed consolidated financial statements. |
|||||||||||
15
APOLLO GLOBAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
For the three months ended March 31, 2021 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Apollo Global Management, Inc. Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Class A Common Stock | Class B Common Stock | Class C Common Stock | Series A Preferred Stock | Series B Preferred Stock | Additional Paid in Capital |
Retained Earnings | Accumulated Other Comprehensive Loss |
Total Apollo Global Management, Inc. Stockholders’ Equity |
Non-Controlling Interests |
Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2021 |
|
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ | ( |
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||||||||||||||
| Accretion of redeemable non-controlling interests | — | — | — | — | — | ( |
— | — | ( |
— | ( |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dilution impact of issuance of common stock | — | — | — | — | — | ( |
— | — | ( |
— | ( |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital increase related to equity-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends/ distributions | — | — | — | ( |
( |
— | ( |
— | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payments related to issuances of common stock for equity-based awards | — | — | — | — | — | ( |
— | ( |
— | ( |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exchange of AOG Units for common stock | — | — | — | — | — | — | ( |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | — | — | — | — | — | — | — | ( |
( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 |
|
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ | ( |
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||||||||||||||
| (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
16
APOLLO GLOBAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
For the three months ended March 31, 2022 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||
| Apollo Global Management, Inc. Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Common Stock | Series A Preferred Stock | Series B Preferred Stock | Additional Paid in Capital |
Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Loss |
Total Apollo Global Management, Inc. Stockholders’ Equity |
Non-Controlling
Interests
|
Total Equity |
||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2022 |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ | ( |
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||||
| Merger with Athene | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of preferred stock to non-controlling interests | — | ( |
( |
— | — | — | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| Consolidation/ deconsolidation of VIEs | — | — | — | — | — | — | — | ( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock related to equity transactions | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Accretion of redeemable non-controlling interests | — | — | — | ( |
— | — | ( |
— | ( |
||||||||||||||||||||||||||||||||||||||||||||
| Capital increase related to equity-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Capital contributions | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Dividends/ distributions | — | — | — | ( |
( |
— | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Payments related to issuances of common stock for equity-based awards | — | — | ( |
— | ( |
— | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( |
— | — | ( |
— | — | ( |
— | ( |
||||||||||||||||||||||||||||||||||||||||||||
| Exchange of AOG Units for common stock | — | — | — | — | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( |
— | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | — | — | — | — | — | ( |
( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 |
|
$ |
|
$ |
|
$ |
|
$ | ( |
$ | ( |
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||||
| (Concluded) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements. | |||||||||||||||||||||||||||||||||||||||||||||||||||||
17
APOLLO GLOBAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Three months ended March 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net Income (Loss) | $ | ( |
$ | ||||||||
| Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities: | |||||||||||
| Equity-based compensation | |||||||||||
| Net investment income | ( |
( |
|||||||||
| Net recognized (gains) losses on investments and derivatives | ( |
||||||||||
| Depreciation and amortization | |||||||||||
| Net amortization of net investment premiums, discount and other | |||||||||||
| Policy acquisition costs deferred | ( |
||||||||||
| Other non-cash amounts included in net income (loss), net | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Purchases of investments | ( |
( |
|||||||||
| Proceeds from sale of investments | |||||||||||
| Interest sensitive contract liabilities | ( |
||||||||||
| Future policy benefits and reinsurance recoverable | ( |
||||||||||
| Other assets and liabilities, net | |||||||||||
| Net Cash Used in Operating Activities | ( |
( |
|||||||||
| Cash Flows from Investing Activities | |||||||||||
| Purchases of investments and contributions to equity method investments | ( |
( |
|||||||||
| Sales, maturities and repayments of investments and distributions from equity method investments | |||||||||||
| Cash acquired through merger | |||||||||||
| Other investing activities, net | ( |
( |
|||||||||
| Net Cash Provided by Investing Activities | |||||||||||
| Cash Flows from Financing Activities | |||||||||||
| Issuance of debt | |||||||||||
| Repayment of debt | ( |
( |
|||||||||
| Repurchase of common stock | ( |
||||||||||
| Common stock dividends | ( |
( |
|||||||||
| Preferred stock dividends | ( |
||||||||||
| Other financing activities, net | ( |
( |
|||||||||
| Distributions paid to non-controlling interests | ( |
( |
|||||||||
| Contributions from non-controlling interests | |||||||||||
| Proceeds from issuance of Class A units of SPAC, net of underwriting and offering costs | |||||||||||
| Deposits on investment-type policies and contracts | |||||||||||
| Withdrawals on investment-type policies and contracts | ( |
||||||||||
| Net change in cash collateral posted for derivative transactions and securities to repurchase | |||||||||||
| Net Cash Provided by Financing Activities | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( |
||||||||||
| Net Increase in Cash and Cash Equivalents, Restricted Cash and Cash Held at Consolidated Variable Interest Entities | |||||||||||
| Cash and Cash Equivalents, Restricted Cash and Cash Held at Consolidated Variable Interest Entities, Beginning of Period | |||||||||||
| Cash and Cash Equivalents, Restricted Cash and Cash Held at Consolidated Variable Interest Entities, End of Period | $ | $ | |||||||||
| (Continued) | |||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements. | |||||||||||
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APOLLO GLOBAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Three months ended March 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Supplemental Disclosure of Cash Flow Information | |||||||||||
| Cash paid for taxes | |||||||||||
| Cash paid for interest | |||||||||||
| Non-cash transactions | |||||||||||
| Non-Cash Operating Activities | |||||||||||
| Asset Management and Other | |||||||||||
| Capital increases related to equity-based compensation | |||||||||||
| Other | ( |
||||||||||
| Non-Cash Investing Activities | |||||||||||
| Asset Management and Other | |||||||||||
| Distributions from principal investments | ( |
||||||||||
| Retirement Services | |||||||||||
| Investments received from pension group annuity premiums | |||||||||||
| Non-Cash Financing Activities | |||||||||||
| Retirement Services | |||||||||||
| Deposits on investment-type policies and contracts through reinsurance agreements | |||||||||||
| Withdrawals on investment-type policies and contracts through reinsurance agreements | |||||||||||
| Reconciliation of Cash and Cash Equivalents, Restricted Cash and Cash Equivalents Held at Consolidated Variable Interest Entities to the Condensed Consolidated Statements of Financial Condition: | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash and cash equivalents | |||||||||||
| Cash held at consolidated variable interest entities | |||||||||||
| Total Cash and Cash Equivalents, Restricted Cash and Cash Equivalents Held at Consolidated Variable Interest Entities | $ | $ | |||||||||
| (Concluded) | |||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements. | |||||||||||
19
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Organization
Apollo Global Management, Inc. together with its consolidated subsidiaries (collectively, “Apollo” or the “Company”) is a global alternative asset manager that offers asset management and retirement services solutions. Through its asset management business, Apollo seeks to provide clients excess return at every point along the risk-reward spectrum from investment grade to private equity with a focus on three investing strategies: yield, hybrid and equity. In its asset management business, Apollo raises, invests and manages funds, accounts and other vehicles, on behalf of pension, endowment and sovereign wealth funds, as well as other institutional and individual investors. Apollo’s retirement services business, which is operated by Athene, seeks to provide policyholders with financial security by providing a suite of retirement savings products and acting as a solutions provider to institutions. Athene specializes in issuing, reinsuring and acquiring retirement savings products in the United States and internationally.
Merger with Athene
On January 1, 2022, Apollo and Athene completed the previously announced merger transactions pursuant to the Merger Agreement (the “Mergers”). As a result of the Mergers, AAM and AHL became consolidated subsidiaries of AGM.
Athene’s results are included in the condensed consolidated financial statements commencing from the Merger Date. References herein to “Apollo” and the “Company” refer to AGM and its subsidiaries, including Athene, unless the context requires otherwise such as in sections where it refers to the asset management business only. See note 3 for additional information.
Corporate Recapitalization
In connection with the closing of the Mergers, the Company completed a corporate recapitalization (the “Corporate Recapitalization”) which resulted in the recapitalization of the Company from an umbrella partnership C corporation (“Up-C”) structure to a corporation with a single class of common stock with one vote per share.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). These condensed consolidated financial statements should be read in conjunction with the annual financial statements included in Apollo Asset Management, Inc.’s annual report on Form 10-K for the year ended 2021. Certain disclosures included in the annual financial statements have been condensed or omitted as they are not required for interim financial statements under U.S. GAAP and the rules of the SEC. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year.
Furthermore, in conjunction with the Mergers, Apollo was deemed to be the accounting acquirer and Athene the accounting acquiree, which, for financial reporting purposes, results in Apollo’s historical financial information prior to the Mergers becoming that of the Company. Athene’s results before the Mergers have not been included in the condensed consolidated financial statements of the Company. The unaudited consolidated financial statements include the assets, liabilities, operating results and cash flows of Athene from the date of acquisition. For information on Athene prior to the Mergers, please refer to the annual financial statements included in AHL’s annual report on Form 10-K for the year ended December 31, 2021.
Following the Mergers, the Company’s principal subsidiaries AAM and AHL, together with their subsidiaries, operate an asset management business and a retirement services business, respectively, which possess distinct characteristics. As a result, the Company’s financial statement presentation is organized into two tiers: asset management and retirement services. The
20
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Company believes that separate presentation provides a more informative view of the Company’s consolidated financial condition and results of operations than an aggregated presentation.
The following summary of significant accounting policies first includes those most significant to the overall company and then specific accounting policies for each of the asset management and retirement services businesses, respectively.
Significant Accounting Policies— Overall
Consolidation
When an entity is consolidated, the accounts of the consolidated entity, including its assets, liabilities, revenues, expenses and cash flows, are presented on a gross basis. Consolidation does not have an effect on the amounts of net income reported. The Company consolidates entities where it has a controlling financial interest unless there is a specific scope exception that prevents consolidation. The types of entities with which the Company is involved generally include, but are not limited to:
•subsidiaries, including management companies and general partners of funds that the Company manages
•entities that have attributes of an investment company (e.g., funds)
•special purpose acquisition companies (“SPACs”)
•securitization vehicles (e.g., collateralized loan obligations (“CLOs”))
•AHL and its subsidiaries
Investment Companies
Funds managed by the Company are generally accounted for as investment companies and are not required to consolidate their investments in operating companies. Judgement is required to evaluate whether entities have the characteristics of an investment company and are thus eligible to be accounted for as an investment company. Funds that meet the investment company criteria reflect their investments at fair value as required by specialized accounting guidance. The Company has retained this specialized accounting for investment companies in consolidation.
Variable Interest Entities
All entities are first considered under the variable interest entities (VIE) model. VIEs are entities that 1) do not have sufficient equity at risk to finance activities without additional subordinated financial support or 2) have equity investors that do not have the ability to make significant decisions related to the entity’s operations, absorb expected losses, or receive expected residual returns.
The Company consolidates a VIE if it is the primary beneficiary of the entity. The Company is deemed the primary beneficiary when it has a controlling financial interest in the VIE, which is defined as possessing both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant. The Company performs the VIE and primary beneficiary assessment at inception of its involvement with a VIE and on an ongoing basis as facts and circumstances change.
To assess whether the Company has the power to direct the activities that most significantly impact the VIE’s economic performance, it considers the design of the entity as well as ongoing rights and responsibilities. In general, the parties that can make the most significant decisions regarding asset management, servicing, liquidation rights or have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of the VIE. To assess whether the Company has the obligation to absorb losses or right to receive benefits that could potentially be significant, the Company considers all its economic interests that are considered variable interests in the entity including interests held through related parties. This assessment requires judgement in considering whether those interests are significant.
Assets and liabilities of the consolidated VIEs, other than SPACs, are primarily shown in separate sections within the condensed consolidated statements of financial condition. Changes in the fair value of the consolidated VIEs’ assets and
21
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
liabilities and related interest, dividend and other income and expenses are primarily presented within net gains from investment activities of consolidated variable interest entities in the condensed consolidated statements of operations. The portion attributable to non-controlling interests is reported within net income attributable to non-controlling interests in the condensed consolidated statements of operations. For additional disclosures regarding VIEs, see notes 6 and 16.
Voting Interest Entities
Entities that are not determined to be VIEs are generally considered voting interest entities (VOEs). Under the voting interest model, the Company consolidates those entities it controls through a majority voting interest. The Company does not consolidate those VOEs in which substantive kick-out rights have been granted to the unrelated investors to either dissolve the fund or remove the general partner.
Use of Estimates
The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts in the financial statements and related footnotes. The Company’s most significant estimates include goodwill and intangible assets, income taxes, performance allocations, incentive fees, non-cash compensation, fair value of investments (including derivatives) and debt, impairment of investments and allowances for expected credit losses, DAC, DSI and VOBA, and future policy benefit reserves. While such impact may change considerably over time, the estimates and assumptions affecting the Company’s condensed consolidated financial statements are based on the best available information as of March 31, 2022. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments with original maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include money market funds and U.S. Treasury securities. Interest income from cash and cash equivalents is recorded in other income for asset management and net investment income for retirement services in the condensed consolidated statements of operations. The carrying values of the money market funds and U.S. Treasury securities represent their fair values due to their short-term nature. Substantially all of the Company’s cash on deposit is in interest bearing accounts with major financial institutions and exceed insured limits.
Restricted Cash and Cash Equivalents
Restricted cash consists of cash and cash equivalents held in funds in trust as part of certain coinsurance agreements to secure statutory reserves and liabilities of the coinsured parties and cash held in reserve accounts used to make required payments in respect of the 2039 Senior Secured Guaranteed Notes. Restricted cash also includes cash deposited at a bank that is pledged as collateral in connection with leased premises.
Foreign Currency
The Company holds foreign currency denominated assets and liabilities. Non-monetary assets and liabilities of the Company’s international subsidiaries are remeasured into the functional currency using historical exchange rates specific to each asset and liability, the exchange rates prevailing at the end of each reporting period are used for all others. The results of the Company’s foreign operations are remeasured using an average exchange rate for the respective reporting period. Currency remeasurement adjustments and gains and losses on the settlement of foreign currency translations are included within other income, net for asset management or investment related gains (losses) for retirement services in the condensed consolidated statements of operations. Foreign currency denominated assets and liabilities are translated into the reporting currency using the exchange rates prevailing at the end of each reporting period. Currency translation adjustments are included within other comprehensive income (loss), before tax within the condensed consolidated statements of comprehensive income (loss). The change in unrealized foreign currency exchange of any non-US dollar denominated available-for-sale (“AFS”) securities are included in other comprehensive income (“OCI”) unless they are designated as part of a fair value hedge.
22
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Investments
Equity Method Investments
For investments in entities over which the Company exercises significant influence but does not meet the requirements for consolidation and has not elected the fair value option, the Company uses the equity method of accounting. Under the equity method of accounting, the Company records its share of the underlying income or loss of such entities adjusted for distributions. The Company’s share of the underlying net income or loss of such entities is recorded in investment income for asset management and net investment income for retirement services in the condensed consolidated statements of operations.
The carrying amounts of equity method investments are recorded in investments in the condensed consolidated statements of financial condition. Generally, the underlying entities that the Company manages and invests in are primarily investment companies and the carrying value of the Company’s equity method investments approximates fair value.
Financial Instruments held by Consolidated VIEs
The consolidated VIEs managed by the Company are primarily investment companies and CLOs. Their investments include debt and equity securities held at fair value. Financial instruments are generally accounted for on a trade date basis.
Under a measurement alternative permissible for consolidated collateralized financing entities, the Company measures both the financial assets and financial liabilities of consolidated CLOs in its condensed consolidated financial statements in both cases using the fair value of the financial assets or financial liabilities, whichever are more observable.
Where financial assets are more observable, the financial assets of the consolidated CLOs are measured at fair value and the financial liabilities are measured in consolidation as: (i) the sum of the fair value of the financial assets and the carrying value of any non-financial assets that are incidental to the operations of the CLOs less (ii) the sum of the fair value of any beneficial interests retained by the Company (other than those that represent compensation for services) and the Company’s carrying value of any beneficial interests that represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interest retained by the Company) using a reasonable and consistent methodology.
Where financial liabilities are more observable, the financial liabilities of the consolidated CLOs are measured at fair value and the financial assets are measured in consolidation as: (i) the sum of the fair value of the financial liabilities, and the carrying value of any non-financial liabilities that are incidental to the operations of the CLOs less (ii) the carrying value of any non-financial assets that are incidental to the operations of the CLOs. The resulting amount is allocated to the individual financial assets using a reasonable and consistent methodology.
Net income attributable to Apollo Global Management, Inc. reflects the Company’s own economic interests in the consolidated CLOs including (i) changes in the fair value of the beneficial interests retained by the Company and (ii) beneficial interests that represent compensation for collateral management services.
Certain consolidated VIEs have applied the fair value option for certain investments in private debt securities that otherwise would not have been carried at fair value with gains and losses in net income.
Fair Value of Financial Instruments
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date under current market conditions. The actual realized gains or losses will depend on, among other factors, future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may ultimately differ significantly from the assumptions on which the valuations were based.
Fair Value Option
Entities are permitted to elect the fair value option (“FVO”) to carry at fair value certain financial assets and financial liabilities, including investments otherwise accounted for under the equity method of accounting. The FVO election is irrevocable and is applied to financial instruments on an individual basis at initial recognition or at eligible remeasurement events. Please refer to note 4 for additional information and other instances of when the Company has elected the FVO.
23
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Fair Value Hierarchy
U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of financial instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions between market participants. Financial instruments with readily available quoted prices in active markets generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Financial instruments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:
Level 1 – Quoted prices are available in active markets for identical financial instruments as of the reporting date. The Company does not adjust the quoted price for these financial instruments, even in situations where the Company holds a large position and the sale of such position would likely deviate from the quoted price.
Level 2 – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. These financial instruments exhibit higher levels of liquid market observability as compared to Level 3 financial instruments.
Level 3 – Pricing inputs are unobservable for the financial instrument and includes situations where there is little observable market activity for the financial instrument. The inputs into the determination of fair value may require significant management judgment or estimation. Financial instruments that are included in this category generally include investments where the fair value is based on observable inputs as well as unobservable inputs.
When a security is valued based on broker quotes, the Company subjects those quotes to various criteria in making the determination as to whether a particular financial instrument would qualify for classification as Level 2 or Level 3. These criteria include, but are not limited to, the number and quality of the broker quotes, the standard deviations of the observed broker quotes, and the percentage deviation from external pricing services.
Investments in securities that are traded on a securities exchange or comparable over-the-counter quotation systems are valued based on the last reported sale price at that date. If no sales of such investments are reported on such date, and in the case of over-the-counter securities or other investments for which the last sale date is not available, valuations are based on independent market quotations obtained from market participants, recognized pricing services or other sources deemed relevant, and the prices are based on the average of the “bid” and “ask” prices, or at ascertainable prices at the close of business on such day. Market quotations are generally based on valuation pricing models or market transactions of similar securities adjusted for security-specific factors such as relative capital structure priority and interest and yield risks, among other factors. When market quotations are not available, a model-based approach is used to determine fair value.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument when the fair value is based on unobservable inputs.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting where the purchase price of the acquisition is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. Contingent consideration obligations that are elements of the consideration transferred are recognized as of the acquisition date as part of the fair value transferred in exchange for the acquired business. Acquisition-related costs incurred in connection with a business combination are expensed as incurred.
24
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Compensation and Benefits
Compensation consists of (i) salary, bonus, and benefits, which includes base salaries, discretionary and non-discretionary bonuses, severance and employee benefits, (ii) equity-based compensation granted to employees and non-employees that is measured based on the grant date fair value of the award and (iii) profit sharing expense, which primarily consists of a portion of performance revenues earned from certain funds that are allocated to employees and former employees. Compensation costs are recorded in compensation and benefits for asset management and policy and other operating expense for retirement services in the condensed consolidated statements of operations.
Non-controlling Interests
For entities that are consolidated, but not wholly owned, a portion of the income or loss and corresponding equity is allocated to owners other than the Company. The aggregate of the income or loss and corresponding equity that is not owned by the Company is included in non-controlling interests in the condensed consolidated financial statements. Non-controlling interests also include ownership interests in certain consolidated funds and VIEs.
Non-controlling interests are presented as a separate component of equity on the Company’s condensed consolidated statements of financial condition. Net income includes the net income attributable to the holders of non-controlling interests on the Company’s condensed consolidated statements of operations. Profits and losses are allocated to non-controlling interests in proportion to their relative ownership interests regardless of their basis.
Earnings Per Share
As the Company has issued participating securities, the two-class method of computing earnings per share is used for all periods presented for common stock and participating securities as if all earnings for the period had been distributed. Under the two-class method, during periods of net income, the net income is first reduced for distributions declared on all classes of securities to arrive at undistributed earnings. During periods of net losses, the net loss is reduced for distributions declared on participating securities only if the security has the right to participate in the earnings of the entity and an objectively determinable contractual obligation to share in net losses of the entity. Participating securities include vested and unvested RSUs that participate in distributions, as well as unvested restricted shares.
Whether during a period of net income or net loss, under the two-class method the remaining earnings are allocated to common stock and participating securities to the extent that each security shares in earnings as if all of the earnings for the period had been distributed. Earnings or losses allocated to each class of security are then divided by the applicable weighted average outstanding shares to arrive at basic earnings per share. For the diluted earnings, the denominator includes all outstanding shares of common stock and includes the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued. The numerator is adjusted for any changes in income or loss that would result from the issuance of these potential shares of common stock.
25
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Share Repurchase
When shares are repurchased, the Company can choose to record treasury shares or account for the repurchase as a constructive retirement. The Company accounted for share repurchases as constructive retirement, whereby it reduced common stock and additional paid-in capital by the amount of the original issuance, with any excess purchase price recorded as a reduction to retained earnings. Under this method, issued and outstanding shares are reduced by the shares repurchased, and no treasury stock is recognized on the condensed consolidated statements of financial condition.
Income Taxes
AGM is a Delaware corporation and generally all of its income is subject to U.S. corporate income taxes. Certain subsidiaries of AGM operate as partnerships for U.S. income tax purposes and are subject to NYC UBT. In conjunction with the Mergers, Apollo underwent a reorganization from an Up-C structure to a C-corporation with a single class of common stock. Athene, and certain of its non-U.S. subsidiaries, are Bermuda exempted companies that have historically not been subject to U.S. corporate income taxes on their earnings. Due to the Mergers, Athene’s non-U.S. earnings will generally be subject to U.S. corporate income taxes.
Significant judgment is required in determining tax expense and in evaluating certain and uncertain tax positions. The Company’s tax positions are reviewed and evaluated quarterly to determine whether the Company has uncertain tax positions that require financial statement recognition. The Company recognizes the tax benefit of uncertain tax positions only where the position is “more likely than not” to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If a tax position were not considered more likely than not to be sustained, then no benefits of the position would be recognized.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the financial statement carrying amount of assets and liabilities and their respective tax bases using currently enacted tax rates in the period the temporary difference is expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period during which the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that all or a portion of the deferred tax assets will not be realized. In determining the realizability of deferred tax assets, the Company evaluates all positive and negative evidence in addition to the ability to carry back losses, the timing of future reversals of taxable temporary differences, tax planning strategies and future expected earnings.
Recently Issued Accounting Pronouncements
Business Combinations – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08)
In October 2021, the FASB issued guidance to add contract assets and contract liabilities from contracts with customers acquired in a business combination to the list of exceptions to the fair value recognition and measurement principles that apply to business combinations, and instead require them to be accounted for in accordance with revenue recognition guidance. The new guidance is mandatorily effective for the Company on January 1, 2023 and applied prospectively, with early adoption permitted. The Company is currently evaluating the new guidance and its impact on the consolidated financial statements.
Insurance – Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2020-11, ASU 2019-09, ASU 2018-12)
These updates amend four key areas pertaining to the accounting and disclosures for long-duration insurance and investment contracts.
•The update requires cash flow assumptions used to measure the liability for future policy benefits to be updated at least annually and no longer allows a provision for adverse deviation. The remeasurement of the liability associated with the update of assumptions is required to be recognized in net income. Loss recognition testing is eliminated for traditional and limited-payment contracts. The update also requires the discount rate used in measuring the liability to be an upper-medium grade fixed- income instrument yield, which is to be updated at each reporting date. The change in liability due to changes in the discount rate is to be recognized in OCI.
26
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
•The update simplifies the amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins, requiring such balances to be amortized on a constant level basis over the expected term of the contracts. Deferred costs are required to be written off for unexpected contract terminations but are not subject to impairment testing.
•The update requires certain contract features meeting the definition of market risk benefits to be measured at fair value. Among the features included in this definition are the GLWB and GMDB riders attached to annuity products. The change in fair value of the market risk benefits is to be recognized in net income, excluding the portion attributable to changes in instrument-specific credit risk which is recognized in OCI.
•The update also introduces disclosure requirements around the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs. This includes disaggregated rollforwards of these balances and information about significant inputs, judgments, assumptions and methods used in their measurement.
Significant Accounting Policies – Asset Management
Due from/to Related Parties
Due from/to related parties includes amounts due from and due to existing employees, certain former employees, portfolio companies of the funds and non-consolidated funds.
Deferred Revenue
Apollo records deferred revenue, which is a type of contract liability, when consideration is received in advance of management services provided. Deferred revenue is reversed and recognized as revenue over the period that the agreed upon services are performed. It is included in accounts payable, accrued expenses, and other liabilities in the condensed consolidated statements of financial condition.
Apollo also earns management fees which are subject to an offset. When Apollo receives cash for advisory and transaction fees, a certain percentage of such advisory and/or transaction fees, as applicable, is allocated as a credit to reduce future management fees, otherwise payable by the relevant fund. Such credit is recorded as deferred revenue in the condensed consolidated statements of financial condition within the accounts payable, accrued expenses and other liabilities line item. A portion of any excess advisory and transaction fees may be required to be returned to the limited partners of certain funds upon such fund’s liquidation. As the management fees earned by Apollo are presented on a gross basis, any management fee offsets calculated are presented as a reduction to advisory and transaction fees in the condensed consolidated statements of operations.
Additionally, Apollo earns advisory fees pursuant to the terms of the advisory agreements with certain of the portfolio companies that are owned by the funds Apollo manages. When Apollo receives a payment from a portfolio company that exceeds the advisory fees earned at that point in time, the excess payment is recorded as deferred revenue in the condensed consolidated statements of financial condition. The advisory agreements with the portfolio companies vary in duration and the associated fees are received monthly, quarterly, or annually.
Under the terms of the funds’ partnership agreements, Apollo is normally required to bear organizational expenses over a set dollar amount and placement fees or costs in connection with the offering and sale of interests in the funds it manages to investors. In cases where the limited partners of the funds are determined to be the customer in an arrangement, placement fees
27
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Revenues
The revenues of the asset management business include (i) management fees; (ii) advisory and transaction fees, net; (iii) investment income, which is comprised of performance allocations and principal investment income; and (iv) incentive fees.
The revenue guidance requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services (i.e., the transaction price). When determining the transaction price under the revenue guidance, an entity may recognize variable consideration only to the extent that it is probable to not be significantly reversed. The revenue guidance also requires disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized.
Refer to disclosures below for additional information on each of the revenue streams of the asset management business.
Management Fees
Management fees are recognized over time during the periods in which the related services are performed in accordance with the contractual terms of the related agreement. Management fees are generally based on (1) a percentage of the capital committed during the commitment period, and thereafter based on the remaining invested capital of unrealized investments, or (2) net asset value, gross assets or as otherwise defined in the respective agreements. Included in management fees are certain expense reimbursements where Apollo is considered the principal under the agreements and is required to record the expense and related reimbursement revenue on a gross basis.
Advisory and Transaction Fees, Net
Advisory fees, including management consulting fees and directors’ fees, are generally recognized over time as the underlying services are provided in accordance with the contractual terms of the related agreement. Apollo receives such fees in exchange for ongoing management consulting services provided to portfolio companies of funds it manages. Transaction fees, including structuring fees and arranging fees related to Apollo’s funds, portfolio companies of funds and third parties are generally recognized at a point in time when the underlying services rendered are complete.
The amounts due from fund portfolio companies are recorded in due from related parties on the condensed consolidated statements of financial condition. Under the terms of the limited partnership agreements for certain funds, the management fee payable by the funds may be subject to a reduction based on a certain percentage of such advisory and transaction fees, net of
28
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
applicable broken deal costs. Advisory and transaction fees are presented net of these management fee offsets in the condensed consolidated statements of operations.
Underwriting fees, which are also included within advisory and transaction fees, net, include gains, losses and fees, arising from securities offerings in which one of the Company’s subsidiaries participates in the underwriter syndicate. Underwriting fees are recognized at a point in time when the underwriting is completed. Underwriting fees recognized but not received are recorded in other assets on the condensed consolidated statements of financial condition.
During the normal course of business, Apollo incurs certain costs related to certain transactions that are not consummated, or “broken deal costs”. These costs (e.g., research costs, due diligence costs, professional fees, legal fees and other related items) are determined to be broken deal costs upon management’s decision to no longer pursue the transaction. In accordance with the related fund agreement, in the event the deal is deemed broken, all of the costs are reimbursed by the funds and then included as a component of the calculation of the management fee offset. If a deal is successfully completed, Apollo is reimbursed by the fund or fund’s portfolio company for all costs incurred and no offset is generated. As Apollo acts as an agent for the funds it manages, any transaction costs incurred and paid by Apollo on behalf of the respective funds relating to successful or broken deals are recorded net on the Company’s condensed consolidated statements of operations, and any receivable from the respective funds is recorded in due from related parties on the condensed consolidated statements of financial condition.
Performance Allocations
Performance allocations are a type of performance revenue (i.e., income earned based on the extent to which an entity’s performance exceeds predetermined thresholds). Performance allocations are generally structured from a legal standpoint as an allocation of capital in which Apollo’s capital account receives allocations of the returns of an entity when those returns exceed predetermined thresholds. The determination of which performance revenues are considered performance allocations is primarily based on the terms of an agreement with the entity.
Apollo recognizes performance allocations within investment income along with the related principal investment income (as described further below) in the condensed consolidated statements of operations and within the investments line in the condensed consolidated statements of financial condition.
When applicable, Apollo may record a general partner obligation to return previously distributed performance allocations. The general partner obligation is based upon an assumed liquidation of a fund’s net assets as of the reporting date and is reported within due to related parties on the condensed consolidated statements of financial condition. The actual determination and any required payment of any such general partner obligation would not take place until the final disposition of a fund’s investments based on the contractual termination of the fund or as otherwise set forth in the respective governing document of the fund.
Principal Investment Income
Principal investment income includes Apollo’s income or loss from equity method investments and certain other investments in entities in which Apollo is generally eligible to receive performance allocations. Income from equity method investments includes Apollo’s share of net income or loss generated from its investments, which are not consolidated, but in which it exerts significant influence.
Incentive Fees
29
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Profit Sharing
Profit sharing expense and profit sharing payable primarily consist of a portion of performance revenues earned from certain funds that are allocated to employees and former employees. Profit sharing amounts are recognized as the related performance revenues are earned. Accordingly, profit sharing amounts can be reversed during periods when there is a decline in performance revenues that were previously recognized. Profit sharing expense is recorded in compensation and benefits for Asset Management in the condensed consolidated statements of operations. Profit sharing payable is recorded in accounts payable, accrued expenses and other liabilities for Asset Management in the condensed consolidated statements of financial condition.
Profit sharing amounts are generally not paid until the related performance revenue is distributed to the general partner upon realization of the fund’s investments. Under certain profit-sharing arrangements, Apollo requires that a portion of certain of the performance revenues distributed to its employees be used to purchase restricted common stock issued under the Equity Plan. Prior to distribution of the performance revenue, the Company records the value of the equity-based awards expected to be granted in other assets and other liabilities within the condensed consolidated statements of financial condition. Such equity-based awards are recorded as equity-based compensation expense over the relevant service period once granted.
Additionally, profit sharing amounts previously distributed may be subject to clawback from employees and former employees. When applicable, the accrual for potential clawback of previously distributed profit sharing amounts, which is a component of due from related parties on the condensed consolidated statements of financial condition, represents all amounts previously distributed to employees and former employees that would need to be returned to the general partner if the funds were to be liquidated based on the fair value of the underlying funds’ investments as of the reporting date. The actual general partner receivable, however, would not become realized until the final disposition of a fund’s investments based on the contractual termination of the fund or as otherwise set forth in the respective governing document of the fund.
Profit sharing payable also includes contingent consideration obligations that were recognized in connection with certain acquisitions. Changes in the fair value of the contingent consideration obligations are reflected in the condensed consolidated statements of operations as compensation and benefits for Asset Management.
Apollo has a performance-based incentive arrangement for certain employees designed to more closely align compensation on an annual basis with the overall realized performance of the Company’s asset management business. This arrangement enables certain employees to earn discretionary compensation based on performance revenue earned by Apollo’s asset management business in a given year, which amounts are reflected in compensation and benefits in the accompanying condensed consolidated financial statements for Asset Management. Apollo may also use dividends it receives from investments in certain perpetual capital vehicles to compensate employees. These amounts are recorded as compensation and benefits in the condensed consolidated statements of operations for Asset Management.
Significant Accounting Policies – Retirement Services
Investments
Fixed Maturity Securities
Fixed maturity securities includes bonds, CLOs, asset-backed securities (“ABS”), residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and redeemable preferred stock. Athene classifies fixed maturity securities as AFS or trading at the time of purchase and subsequently carries them at fair value. Classification is dependent on a variety of factors including expected holding period, election of the fair value option and asset and liability matching.
AFS Securities
AFS securities are held at fair value on the condensed consolidated statements of financial condition with unrealized gains and losses, net of allowances for expected credit losses, tax and adjustments to DAC, DSI, and future policy benefits, if applicable, generally reflected in accumulated other comprehensive income (loss) (“AOCI”) on the condensed consolidated statements of financial condition. Unrealized gains or losses relating to identified risks within AFS securities in fair value hedging relationships are reflected in investment related gains (losses) on the condensed consolidated statements of operations.
30
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Trading Securities
The fair value option is elected for certain fixed maturity securities. These fixed maturity securities are classified as trading, with changes to fair value included in investment related gains (losses) on the condensed consolidated statements of operations. Although the securities are classified as trading, the trading activity related to these investments is primarily focused on asset and liability matching activities and is not intended to be an income strategy based on active trading. As such, the activity related to these investments on the condensed consolidated statements of cash flows is classified as investing activities.
Transactions in trading securities are generally recorded on a trade date basis, with any unsettled trades recorded in other assets or other liabilities on the condensed consolidated statements of financial condition. Bank loans, private placements and investment funds are recorded on settlement date basis.
Equity Securities
Equity securities includes common stock, mutual funds and non-redeemable preferred stock. Equity securities with readily determinable fair values are carried at fair value with subsequent changes in fair value recognized in net income. Retirement Services has elected to account for certain equity securities without readily determinable fair values that do not qualify for the practical expedient to estimate fair values based on net asset value (“NAV”) per share (or its equivalent) at cost less impairment, subject to adjustments based on observable price changes in orderly transactions for identical or similar investments of the same issuer.
Purchased Credit Deteriorated (“PCD”) Investments
Athene purchases certain structured securities, primarily RMBS, and re-performing mortgage loans having experienced a more-than-insignificant deterioration in credit quality since their origination which upon assessment have been determined to meet the definition of PCD investments. Additionally, structured securities classified as beneficial interests follow the initial measurement guidance for PCD investments if there is a significant difference between contractual cash flows adjusted for expected prepayments and expected cash flows at the date of recognition. The initial allowance for credit losses for PCD investments is recorded through a gross-up adjustment to the initial amortized cost. For structured securities classified as beneficial interests, the initial allowance is calculated as the present value of the difference between contractual cash flows adjusted for expected prepayments and expected cash flows at the date of recognition. The non-credit purchase discount or premium is amortized into investment income using the effective interest method. The credit discount, represented by the allowance for expected credit losses, is remeasured each period following the policies for measuring credit losses described in Credit Losses – Available-for-Sale Securities section below.
Mortgage Loans
Athene elected the fair value option on Athene’s mortgage loan portfolio. Interest income is accrued on the principal amount of the loan based on its contractual interest rate. Interest is accrued on loans until it is probable it will not be received, or the loan is 90 days past due, unless guaranteed by U.S. government-sponsored agencies. Interest income and prepayment fees are reported in net investment income on the condensed consolidated statements of operations. Changes in the fair value of the mortgage loan portfolio are reported in investment related gains (losses) on the condensed consolidated statements of operations.
Investment Funds
Athene invests in certain non-fixed income, alternative investments in the form of limited partnerships or similar legal structures (investment funds). For investment funds in which it does not hold a controlling financial interest, Athene typically accounts for such investments using the equity method, where the cost is recorded as an investment in the fund, or it has elected the fair value option. Adjustments to the carrying amount reflect pro rata ownership percentage of the operating results as indicated by NAV in the investment fund financial statements, which can be on a lag of up to three months when investee information is not received in a timely manner.
Athene’s proportionate share of investment fund income is recorded within net investment income on the condensed consolidated statements of operations. Contributions paid or distributions received by Athene are recorded directly to the investment fund balance as an increase to carrying value or as a return of capital, respectively.
31
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Policy Loans
Policy loans are funds provided to policyholders in return for a claim on the policyholder’s account balance. The funds provided are limited to a specified percentage of the account balance. The majority of policy loans do not have a stated maturity and the balances and accrued interest are repaid with proceeds from the policyholder’s account balance. Policy loans are reported at the unpaid principal balance. Interest income is recorded as earned using the contract interest rate and is reported in net investment income on the condensed consolidated statements of operations.
Funds Withheld at Interest
Funds withheld at interest represents a receivable for amounts contractually withheld by ceding companies in accordance with funds withheld coinsurance (funds withheld) and modified coinsurance (“modco”) reinsurance agreements in which Athene acts as the reinsurer. Generally, assets equal to statutory reserves are withheld and legally owned by the ceding company, and any excess or shortfall is settled periodically. The underlying agreements contain embedded derivatives as discussed below.
Short-term Investments
Short-term investments consist of financial instruments with maturities of greater than three months but less than twelve months when purchased. Short-term debt securities are accounted for as trading or AFS consistent with the policies for those investments. Short-term loans are carried at amortized cost.
Other Investments
Other investments includes, but is not limited to, term loans collateralized by mortgages on residential and commercial real estate. Mortgage collateralized term loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of allowances for expected credit losses. Interest income is accrued on the principal amount of the loan based on its contractual interest rate. Loan premiums and discounts are amortized or accreted using the effective interest method and contractual cash flows on the underlying loan. Interest on loans is accrued until it is probable it will not be received or the loan is 90 days past due. Interest income, amortization of premiums and discounts, and prepayment and other fees are reported in net investment income on the condensed consolidated statements of operations.
Securities Repurchase and Reverse Repurchase Agreements
32
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Credit Losses – Available-for-Sale Securities
AFS securities with a fair value that has declined below amortized cost are evaluated to determine how the decline in fair value should be recognized. If based on the facts and circumstances related to the specific security, Athene intends to sell a security or it is more likely than not that it would be required to sell a security before the recovery of its amortized cost, any existing allowance for expected credit losses is reversed and the amortized cost of the security is written down to fair value. If neither of these conditions exist, the decline in fair value is evaluated to determine whether it has resulted from a credit loss or other factors.
For non-structured AFS securities, relevant facts and circumstances are qualitatively considered in evaluating whether a decline below fair value is credit-related. Relevant facts and circumstances include but are not limited to: (1) the extent to which the fair value is less than amortized cost; (2) changes in agency credit ratings, (3) adverse conditions related to the security’s industry or geographical area, (4) failure to make scheduled payments, and (5) other known changes in the financial condition of the issuer or quality of any underlying collateral or credit enhancements. For structured AFS securities meeting the definition of beneficial interests, the qualitative assessment is bypassed, and any securities having experienced a decline in fair value below amortized cost move directly to a quantitative analysis.
If upon completion of this analysis it is determined that a potential credit loss exists, an allowance for expected credit losses is established equal to the amount by which the present value of expected cash flows is less than amortized cost, limited by the amount by which fair value is less than amortized cost. A non-structured security’s cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or the disposition of assets using security-specific facts and circumstances including timing, security interests and loss severity. A structured security’s cash flow estimates are based on security-specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity, prepayments and structural support, including subordination and guarantees. The expected cash flows are discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete a structured security. For securities with a contractual interest rate that varies based on changes in an independent factor, such as an index or rate, the effective interest rate is calculated based on the factor as it changes over the life of the security. Inherently under the discounted cash flow model, both the timing and amount of expected cash flows affect the measurement of the allowance for expected credit losses.
The allowance for expected credit losses is remeasured each period for the passage of time, any change in expected cash flows, and changes in the fair value of the security. All impairments, whether intent or requirement to sell or credit-related, are recorded through a charge to credit loss expense within investment related gains (losses) on the condensed consolidated statements of operations. All changes in the allowance for expected credit losses are recorded through credit loss expense within investment related gains (losses) on the condensed consolidated statements of operations.
The Company has elected to present accrued interest receivable separately in other assets on the condensed consolidated balance sheets. It has also elected the practical expedient to exclude the accrued interest receivable from the amortized cost balance used to calculate the allowance for expected credit losses, as it has a policy to write off such balances in a timely manner, when they become 90 days past due. Any write-off of accrued interest is recorded through a reversal of net investment income on the condensed consolidated statements of operations.
Derivative Instruments
Athene invests in derivatives to hedge the risks experienced from ongoing operations, such as equity, interest rate and cash flow risks, or for other risk management purposes, which primarily involve managing liability risks associated with indexed annuity products and reinsurance agreements. Derivatives are financial instruments with values that are derived from interest rates, foreign exchange rates, financial indices or other combinations of an underlying and notional. Derivative assets and liabilities are carried at fair value on the condensed consolidated statements of financial condition. The Company elects to present any derivatives subject to master netting provisions as a gross asset or liability and gross of collateral. It may designate derivatives as cash flow, fair value or net investment hedges.
33
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Hedge Documentation and Hedge Effectiveness
To qualify for hedge accounting, at the inception of the hedging relationship, Athene formally documents its designation of the hedge as a cash flow, fair value or net investment hedge and risk management objective and strategy for undertaking the hedging transaction. This documentation identifies how the hedging instrument is expected to hedge the designated risks related to the hedged item and the method that will be used to retrospectively and prospectively assess the hedge effectiveness and the method which will be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the hedge accounting relationship. For a cash flow hedge, all changes in the fair value of the hedging derivative are reported within AOCI and the related gains or losses on the derivative are reclassified into the condensed consolidated statements of operations when the cash flows of the hedged item affect earnings.
For a cash flow hedge, all changes in the fair value of the hedging derivative are reported within AOCI and the related gains or losses on the derivative are reclassified into the condensed consolidated statements of operations when the cash flows of the hedged item affect earnings.
For a fair value hedge, changes in the fair value of the hedging derivative and changes in the fair value of the hedged item related to the designated risk being hedged are reported on the condensed consolidated statements of operations according to the nature of the risk being hedged. Additionally, changes in the fair value of amounts excluded from the assessment of effectiveness are recorded in AOCI and amortized into income over the life of the hedge accounting relationship.
For a net investment hedge, changes in the fair value of the hedging derivative are reported within AOCI to offset the translation adjustments for subsidiaries with functional currencies other than U.S. dollar.
Athene discontinues hedge accounting prospectively when: (1) it determines the derivative is no longer highly effective in offsetting changes in the estimated cash flows or fair value of a hedged item; (2) the derivative expires, is sold, terminated, or exercised; or (3) the derivative is de-designated as a hedging instrument. When hedge accounting is discontinued, the derivative continues to be carried on the condensed consolidated statements of financial condition at fair value, with changes in fair value recognized in investment related gains (losses) on the condensed consolidated statements of operations.
Embedded Derivatives
Athene issues and reinsures products, primarily indexed annuity products, or purchase investments that contain embedded derivatives. If it determines the embedded derivative has economic characteristics not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host contract and accounted for separately, unless the fair value option is elected on the host contract. Under the fair value option, bifurcation of the embedded derivative is not necessary as the entire contract is carried at fair value with all related gains and losses recognized in investment related gains (losses) on the condensed consolidated statements of operations. Embedded derivatives are carried on the condensed consolidated statements of financial condition at fair value in the same line item as the host contract.
Fixed indexed annuity, index-linked variable annuity and indexed universal life insurance contracts allow the policyholder to elect a fixed interest rate return or an equity market component for which interest credited is based on the performance of certain stock market indices. The equity market option is an embedded derivative. The benefit reserve is equal to the sum of the fair value of the embedded derivative and the host (or guaranteed) component of the contracts. The fair value of the embedded derivatives represents the present value of cash flows attributable to the indexed strategies. The embedded derivative cash flows are based on assumptions for future policy growth, which include assumptions for expected index credits on the next policy anniversary date, future equity option costs, volatility, interest rates and policyholder behavior assumptions including lapses and the use of benefit riders. The embedded derivative cash flows are discounted using a rate that reflects Athene’s own credit rating. The host contract is established at contract inception as the initial account value less the initial fair value of the embedded derivative and accreted over the policy’s life. Contracts acquired through a business combination which contain an embedded derivative are re-bifurcated as of the acquisition date. Changes in the fair value of embedded derivatives associated with fixed indexed annuities, index-linked variable annuities and indexed universal life insurance contracts are included in interest sensitive contract benefits on the condensed consolidated statements of operations.
34
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Reinsurance
Athene assumes and cedes insurance and investment contracts under coinsurance, funds withheld and modco. Reinsurance accounting is applied for transactions that provide indemnification against loss or liability relating to insurance risk (risk transfer). To meet risk transfer requirements, a reinsurance agreement must transfer insurance risk arising from uncertainties about both underwriting and timing risks. Cessions under reinsurance do not discharge obligations as the primary insurer, unless the requirements of assumption reinsurance have been met.
Assets and liabilities assumed or ceded under coinsurance, funds withheld, or modco are presented gross on the condensed consolidated statements of financial condition. For investment contracts, the change in assumed and ceded reserves are presented net in interest sensitive contract benefits on the condensed consolidated statements of operations. For insurance contracts, the change in assumed and ceded reserves and benefits are presented net in future policy and other policy benefits on the condensed consolidated statements of operations. Assumed or ceded premiums are included in premiums on the condensed consolidated statements of operations.
Deferred Acquisition Costs, Deferred Sales Inducements and Value of Business Acquired
Deferred Acquisition Costs and Deferred Sales Inducements
Costs related directly to the successful acquisition of new, or renewal of, insurance or investment contracts are deferred to the extent they are recoverable from future premiums or gross profits. These costs consist of commissions and policy issuance costs, as well as sales inducements credited to policyholder account balances, and are included in deferred acquisition costs, deferred sales inducements and value of business acquired on the condensed consolidated statements of financial condition. Athene performs periodic tests, including at issuance, to determine if the deferred costs are recoverable. If it determines that the deferred costs are not recoverable, a cumulative charge is recorded to the current period.
Deferred costs related to universal life-type policies and investment contracts with significant revenue streams from sources other than investment of the policyholder funds are amortized over the lives of the policies, based upon the proportion of the present value of actual and expected deferred costs to the present value of actual and expected gross profits to be earned over
35
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Value of Business Acquired
Athene establishes VOBA for blocks of insurance contracts acquired through the acquisition of insurance entities. It records the fair value of the liabilities assumed in two components: reserves and VOBA. Reserves are established using Athene’s best estimate assumptions consistent with the policies described below for future policy benefits and interest sensitive contract liabilities. VOBA is the difference between the fair value of the liabilities and the reserves. VOBA can be either positive or negative. Any negative VOBA is recorded to the same financial statement line on the condensed consolidated statements of financial condition as the associated reserves. Positive VOBA is recorded in deferred acquisition costs, deferred sales inducements and value of business acquired on the condensed consolidated statements of financial condition. Athene performs periodic tests to determine if the VOBA remains recoverable. If it determines that VOBA is not recoverable, a cumulative charge is recorded to the current period.
VOBA and negative VOBA are amortized in relation to applicable policyholder liabilities. Significant assumptions which impact VOBA and negative VOBA amortization are consistent with those which impact the measurement of policyholder liabilities.
Interest Sensitive Contract Liabilities
Universal life-type policies and investment contracts include fixed indexed and traditional fixed annuities in the accumulation phase, funding agreements, universal life insurance, fixed indexed universal life insurance and immediate annuities without significant mortality risk (which includes pension group annuities without life contingencies). Athene carries liabilities for fixed annuities, universal life insurance and funding agreements at the account balances without reduction for potential surrender or withdrawal charges, except for a block of universal life business ceded to Global Atlantic Financial Group Limited (together with its subsidiaries, “Global Atlantic”) which it carries at fair value. Liabilities for immediate annuities without significant mortality risk are calculated as the present value of future liability cash flows and policy maintenance expenses discounted at contractual interest rates. For a discussion regarding indexed products, refer above to the embedded derivative discussion.
Future Policy Benefits
Athene issues contracts classified as long-duration, which includes term and whole life, accident and health, disability, and deferred and immediate annuities with life contingencies (which includes pension group annuities with life contingencies). Liabilities for non-participating long-duration contracts are established using accepted actuarial valuation methods which require the use of assumptions related to expenses, investment yields, mortality, morbidity and persistency, with a provision for adverse deviation, at the date of issue or acquisition. As of March 31, 2022, the reserve investment yield assumptions for non-
36
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
participating contracts range from 2.3 % to 4.1 % and are specific to Athene’s expected earned rate on the asset portfolio supporting the reserves. Athene bases other key assumptions, such as mortality and morbidity, on industry standard data adjusted to align with actual company experience, if necessary.
For long-duration contracts, the assumptions are locked in at contract inception and only modified if Athene deems the reserves to be inadequate. Athene periodically reviews actual and anticipated experience compared to the assumptions used to establish policy benefits. If the net U.S. GAAP liability (gross reserves less DAC, DSI and VOBA) is less than the gross premium liability, impairment is deemed to have occurred, and the DAC, DSI and VOBA asset balances are reduced until the net U.S. GAAP liability is equal to the gross premium liability. If the DAC, DSI and VOBA asset balances are completely written off and the net U.S. GAAP liability is still less than the gross premium liability, then an additional liability is recorded to arrive at the gross premium liability.
Athene issues and reinsures deferred annuity contracts which contain GLWB and GMDB riders. Future policy benefits for GLWB and GMDB riders are established by estimating the expected value of withdrawal and death benefits in excess of the projected policyholder account balances. The excess is recognized proportionally over the accumulation period based on total actual and expected assessments. The methods used to estimate the liabilities have assumptions about policyholder behavior, which includes lapses, withdrawals and utilization of benefit riders; mortality, expected yield on investments supporting the liability; and market conditions affecting the account balance growth.
Future policy benefits includes liabilities for no-lapse guarantees on universal life insurance and fixed indexed universal life insurance. Retirement Services establishes future policy benefits for no-lapse guarantees by estimating the expected value of death benefits paid after policyholder account balances have been exhausted. Retirement Services recognizes these benefits proportionally over the life of the contracts based on total actual and expected assessments. The methods Retirement Services uses to estimate the liabilities have assumptions about policyholder behavior, mortality, expected yield on investments supporting the liability, and market conditions affecting policyholder account balance growth.
For the liabilities associated with GLWB and GMDB riders and no-lapse guarantees, each reporting period, expected excess benefits and assessments are updated with actual excess benefits and assessments and liability balances are adjusted due to the OCI effects of unrealized investment gains and losses on AFS securities. The key assumptions used in the calculation of the liabilities are also periodically revised which results in revisions to the expected excess benefits and assessments. The effects of changes in assumptions are recorded as unlocking in the period in which the changes are made.
Changes in future policy benefits other than the adjustment for the OCI effects of unrealized investment gains and losses on AFS securities, are recorded in future policy and other policy benefits on the condensed consolidated statements of operations. Future policy benefits are not reduced for amounts ceded under reinsurance agreements which are reported as reinsurance recoverable on the condensed consolidated statements of financial condition.
Revenues
Revenues for universal life-type policies and investment contracts, including surrender and market value adjustments, costs of insurance, policy administration, GMDB, GLWB and no-lapse guarantee charges, are earned when assessed against policyholder account balances during the period. Interest credited to policyholder account balances and the change in fair value of embedded derivatives within fixed indexed annuity contracts is included in interest sensitive contract benefits on the condensed consolidated statements of operations.
Premiums for long-duration contracts, including products with fixed and guaranteed premiums and benefits, are recognized as revenue when due from policyholders. When premiums are due over a significantly shorter period than the period over which benefits are provided, such as immediate annuities with life contingencies (which includes pension group annuities), a deferred profit liability is established equal to the excess of the gross premium over the net premium. The deferred profit liability is recognized in future policy benefits on the condensed consolidated statements of financial condition and amortized into income in relation to applicable policyholder liabilities through future policy and other policy benefits on the condensed consolidated statements of operations.
37
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
3. Merger with Athene
On January 1, 2022, Apollo and Athene completed the previously announced merger transactions pursuant to the Merger Agreement. As a result of the Mergers, AAM and AHL became subsidiaries of AGM.
Under the Merger Agreement, each issued and outstanding Athene common share was converted automatically into 1.149 shares of common stock of AGM and any cash paid in lieu of fractional shares. The purchase price was as follows:
| (In millions, except share price data and exchange ratio) | |||||
| AHL common shares purchased | |||||
| Exchange ratio | |||||
| Shares of common stock issued in exchange | |||||
| AGM Class A shares closing price | $ | ||||
| Total merger consideration at closing | $ | ||||
Fair value of estimated RSUs, options and warrants assumed and other equity consideration1,2
|
|||||
Effective settlement of pre-existing relationships3
|
|||||
| Total merger consideration | |||||
Fair value of AHL common shares previously held ( |
|||||
| Total AHL equity value held by AGM | |||||
Non-controlling interest6
|
|||||
| Total AHL equity value | $ | ||||
1 AGM issued one-time grants of fully vested RSUs and options to certain executives and shareholders of Athene vesting upon consummation of the Mergers. Additionally, all issued and outstanding warrants of Athene prior to the Merger Date were exchanged for shares of AGM common stock at the time of the Mergers. The fair value of these awards is $ | |||||
2 AGM issued replacement awards for all outstanding Athene equity awards. | |||||
3 The pre-existing relationship related to receivables, payables, and dividends between Apollo and Athene. Total fees payable to AGM by Athene for asset management and advisory services were approximately $ | |||||
4 Based on the December 31, 2021 closing price of AHL common shares on the NYSE.
| |||||
5 Other adjustments includes pushdown of goodwill arising out of deferred tax liabilities associated with identifiable net assets of Athene.
| |||||
6 Non-controlling interest in Athene includes holders of Athene’s preferred shares and third-party investors in ACRA and in consolidated VIEs of Athene. The fair value of Athene’s preferred shares was based on the closing stock price of Athene’s preferred shares immediately prior to the consummation of the Athene merger and the fair value of the non-controlling interest in ACRA was determined using the discounted distribution model approach.
| |||||
The value of the consideration at closing is subject to certain post-closing adjustments, which could represent an adjustment to the preliminary determination of goodwill recorded.
The Mergers were accounted for as a business combination. The consideration has been allocated to Athene's assets acquired and liabilities assumed based on estimates of their fair values as of the Merger Date. The fair value of assets acquired, and liabilities assumed represent a provisional allocation, as the Company’s evaluation of facts and circumstances available as of the Merger Date is ongoing. The business combination was achieved in steps. The Company previously held its equity interests in the acquiree at fair value.
Goodwill of $4.2 billion has been recorded based on the amount that the Athene equity value exceeds the fair value of the net assets acquired less the amounts attributable to non-controlling interests. Goodwill is primarily attributable to the scale, skill sets, operations, and synergies that can be achieved subsequent to the Mergers. The goodwill recorded is not expected to be deductible for tax purposes.
The financial statements will not be retrospectively adjusted for any changes to the provisional values of assets acquired and liabilities assumed that occur in subsequent periods. Any adjustments will be recognized as information related to this preliminary fair value calculation is obtained. The effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of any change to the provisional amounts, will be recorded in the same period as the financial statements, calculated as if the accounting had been completed at the Merger Date. The purchase price allocation is expected to be finalized as soon as practicable, but no later than one year from the Merger Date.
38
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table summarizes the provisional fair value amounts recognized for the assets acquired and liabilities assumed and resulting goodwill as of the Merger Date:
| (In millions) | Fair Value and Goodwill Calculation | ||||
| Merger consideration | $ | ||||
| Fair value of previously held equity interest | |||||
| Total Athene Value to be Held by the Company | |||||
| Total Value to Allocate | |||||
| Investments | |||||
| Cash and cash equivalents | |||||
| Restricted cash and cash equivalents | |||||
| Investment in related parties | |||||
| Reinsurance recoverable | |||||
| VOBA | |||||
| Assets of consolidated variable interest entities | |||||
| Other assets | |||||
| Estimated fair value of total assets acquired (excluding goodwill) | |||||
| Interest sensitive contract liabilities | |||||
| Future policy benefits | |||||
| Debt | |||||
| Payables for collateral on derivatives and securities to repurchase | |||||
| Liabilities of consolidated variable interest entities | |||||
| Other liabilities | |||||
| Estimated fair value of total liabilities assumed | |||||
| Non-controlling interest | |||||
| Estimated fair value of net assets acquired, excluding goodwill | |||||
| Goodwill attributable to Athene | $ | ||||
Included within the above are provisional amounts for (1) VOBA, (2) interest sensitive contract liabilities, (3) future policy benefits, and (4) other assets and other liabilities for the portion of net assets acquired relating to other identifiable intangibles and deferred taxes, based on the availability of data as of the date the financial statements were available to be issued. Any adjustment to provisional amounts will be made prospectively as data becomes available. The income effects from changes to provisional amounts will be recorded in the period the adjustment is made, as if the adjustment had been recorded on the Merger Date. The Company expects to finalize purchase accounting as soon as practicable but no later than one year from the Merger Date.
The Company performed a valuation of the acquired investments, policy liabilities, VOBA, other identifiable intangibles, and funds withheld at interest payables and receivables using methodologies consistent with those described in note 2 and note 7.
Value of business acquired and Other identifiable intangible assets
VOBA represents the difference between the fair value of liabilities acquired and reserves established using best estimate assumptions at the Merger Date. Other identifiable intangible assets are included in other assets on the condensed consolidated statement of financial condition and summarized as follow:
| Distribution Channels | Trade Name | Insurance Licenses | ||||||||||||
| These assets are valued using the excess earnings method, which derives value based on the present value of the cash flow attributable to the distribution channels, less returns for contributory assets. | This represents the Athene trade name and was valued using the relief-from-royalty method considering publicly available third-party trade name royalty rates as well as expected premiums generated by the use of the trade name over its anticipated life. | Licenses are protected through registration and were valued using the market approach based on third-party market transactions from which the prices paid for state insurance licenses could be derived. | ||||||||||||
39
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The fair value and weighted average estimated useful lives of VOBA and other identifiable intangible assets acquired in the Mergers consist of the following:
|
Fair value
(in millions)
|
Average useful life
(in years)
|
||||||||||
| VOBA Asset | $ | ||||||||||
| Distribution Channels | |||||||||||
| Trade Name | |||||||||||
| State Insurance Licenses | Indefinite | ||||||||||
| Total | $ | ||||||||||
As of the Merger Date, Athene's financial results are reflected in these condensed consolidated financial statements. Athene's revenues of $(234 ) million and net income (loss) of $(1,310 ) million are included in the condensed consolidated statement of operations for the three months ended March 31, 2022. Transaction costs of $18 million were incurred during the three months ended March 31, 2022 and are included in general, administrative and other on the statements of operations.
Pro Forma Financial Information
Unaudited pro forma financial information for the three months ended March 31, 2021 is presented below. Pro forma financial information presented does not include adjustments to reflect any potential revenue synergies or cost savings that may be achievable in connection with the Merger and assume the Merger occurred as of January 1, 2021. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of future operations or results had the Merger been completed as of January 1, 2021.
| (In millions) | Three months ended March 31, 2021 | ||||
| Total Revenues | $ | ||||
| Net income attributable to Apollo | |||||
Amounts above reflect certain pro forma adjustments that were directly attributable to the Merger. These adjustments include the following:
•the elimination of historical amortization of Athene’s intangibles and the additional amortization of intangibles measured at fair value as of the Merger Date;
•the prospective adjustments to the book value of AFS securities and the fair value of mortgage loans, which will be amortized into income based on the expected life of the investments.
40
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
4. Investments
The following table outlines the Company’s investments:
| (In millions) | March 31, 2022 | December 31, 2021 | |||||||||
Asset Management |
|||||||||||
| Investments, at fair value | $ | $ | |||||||||
| Equity method investments | |||||||||||
| Performance allocations | |||||||||||
| U.S. Treasury securities, at fair value | |||||||||||
Total Investments – Asset Management |
|||||||||||
Retirement Services |
|||||||||||
| AFS securities, at fair value | $ | $ | |||||||||
| Trading securities, at fair value | |||||||||||
| Equity securities | |||||||||||
| Mortgage loans, at fair value | |||||||||||
| Investment funds | |||||||||||
| Policy loans | |||||||||||
| Funds withheld at interest | |||||||||||
| Derivative assets | |||||||||||
| Short-term investments | |||||||||||
| Other investments | |||||||||||
Total Investments, including related party – Retirement Services |
|||||||||||
| Total Investments | $ | $ | |||||||||
Asset Management
Net Gains (Losses) from Investment Activities
The following outlines realized and net change in unrealized gains (losses) reported in net gains (losses) from investment activities:
| Three months ended March 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Realized gains (losses) on sales of investments, net | $ | ( |
$ | ||||||||
| Net change in unrealized gains (losses) due to changes in fair value | |||||||||||
| Net gains (losses) from investment activities | $ | $ | |||||||||
Performance Allocations
Performance allocations receivable is recorded within investments in the condensed consolidated statements of financial condition. The table below provides a roll forward of the performance allocations balance:
| (In millions) | Total | ||||
Performance allocations, January 1, 2022 |
$ | ||||
| Change in fair value of funds | |||||
| Fund distributions to the Company | ( |
||||
Performance allocations, March 31, 2022 |
$ | ||||
The change in fair value of funds excludes the general partner obligation to return previously distributed performance allocations, which is recorded in due to related parties in the condensed consolidated statements of financial condition.
The timing of the payment of performance allocations due to the general partner or investment manager varies depending on the terms of the applicable fund agreements. Generally, performance allocations with respect to the private equity funds and certain credit and real assets funds are payable and are distributed to the fund’s general partner upon realization of an investment if the fund’s cumulative returns are in excess of the preferred return.
41
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Retirement Services
AFS Securities
The following table represents the amortized cost, allowance for credit losses, gross unrealized gains and losses and fair value of Athene’s AFS investments by asset type:
| March 31, 2022 | |||||||||||||||||||||||||||||
| (In millions) | Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||
| AFS Securities | |||||||||||||||||||||||||||||
| US government and agencies | $ | $ | $ | $ | ( |
$ | |||||||||||||||||||||||
| US state, municipal and political subdivisions | ( |
||||||||||||||||||||||||||||
| Foreign governments | ( |
( |
|||||||||||||||||||||||||||
| Corporate | ( |
( |
|||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||
| ABS | ( |
( |
|||||||||||||||||||||||||||
| CMBS | ( |
( |
|||||||||||||||||||||||||||
| RMBS | ( |
( |
|||||||||||||||||||||||||||
| Total AFS securities | ( |
( |
|||||||||||||||||||||||||||
| AFS securities – related party | |||||||||||||||||||||||||||||
| Corporate | ( |
||||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||
| ABS | ( |
( |
|||||||||||||||||||||||||||
| Total AFS securities – related party | ( |
( |
|||||||||||||||||||||||||||
| Total AFS securities including related party | $ | $ | ( |
$ | $ | ( |
$ | ||||||||||||||||||||||
The amortized cost and fair value of AFS securities, including related party, are shown by contractual maturity below:
| March 31, 2022 | |||||||||||
| (In millions) | Amortized Cost | Fair Value | |||||||||
| AFS securities | |||||||||||
| Due in one year or less | $ | $ | |||||||||
| Due after one year through five years | |||||||||||
| Due after five years through ten years | |||||||||||
| Due after ten years | |||||||||||
| CLO, ABS, CMBS and RMBS | |||||||||||
| Total AFS securities | |||||||||||
| AFS securities – related party | |||||||||||
| Due after one year through five years | |||||||||||
| Due after five years through ten years | |||||||||||
| Due after ten years | |||||||||||
| CLO and ABS | |||||||||||
| Total AFS securities – related party | |||||||||||
| Total AFS securities including related party | $ | $ | |||||||||
Actual maturities can differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
42
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Unrealized Losses on AFS Securities
The following summarizes the fair value and gross unrealized losses for AFS securities, including related party, for which an allowance for credit losses has not been recorded, aggregated by asset type and length of time the fair value has remained below amortized cost:
| March 31, 2022 | |||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||
| (In millions) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||
| AFS Securities | |||||||||||||||||||||||||||||||||||
| US government and agencies | $ | $ | ( |
$ | $ | $ | $ | ( |
|||||||||||||||||||||||||||
| US state, municipal and political subdivisions | ( |
( |
|||||||||||||||||||||||||||||||||
| Foreign governments | ( |
( |
|||||||||||||||||||||||||||||||||
| Corporate | ( |
( |
|||||||||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||||||||
| ABS | ( |
( |
|||||||||||||||||||||||||||||||||
| CMBS | ( |
( |
|||||||||||||||||||||||||||||||||
| RMBS | ( |
( |
|||||||||||||||||||||||||||||||||
| Total AFS securities | ( |
( |
|||||||||||||||||||||||||||||||||
| AFS securities – related party | |||||||||||||||||||||||||||||||||||
| Corporate | ( |
( |
|||||||||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||||||||
| ABS | ( |
( |
|||||||||||||||||||||||||||||||||
| Total AFS securities – related party | ( |
( |
|||||||||||||||||||||||||||||||||
| Total AFS securities including related party | $ | $ | ( |
$ | $ | $ | $ | ( |
|||||||||||||||||||||||||||
The following summarizes the number of AFS securities that were in an unrealized loss position, including related party, for which an allowance for credit losses has not been recorded:
| March 31, 2022 | |||||||||||
| Unrealized Loss Position | Unrealized Loss Position 12 Months or More | ||||||||||
| AFS securities | |||||||||||
| AFS securities – related party | |||||||||||
The unrealized losses on AFS securities can primarily be attributed to changes in market interest rates since acquisition. Athene did not recognize the unrealized losses in income as it intends to hold these securities and it is not more likely than not it will be required to sell a security before the recovery of its amortized cost.
43
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Allowance for Credit Losses
The following table summarizes the activity in the allowance for credit losses for AFS securities by asset type:
| March 31, 2022 | |||||||||||||||||||||||||||||||||||
| Additions | Reductions | ||||||||||||||||||||||||||||||||||
| (In millions) |
Beginning balance1
|
Initial credit losses | Initial credit losses on PCD securities | Securities sold during the period | Additions (reductions) to previously impaired securities | Ending Balance | |||||||||||||||||||||||||||||
| AFS Securities | |||||||||||||||||||||||||||||||||||
| Foreign governments | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Corporate | |||||||||||||||||||||||||||||||||||
| CLO | |||||||||||||||||||||||||||||||||||
| ABS | |||||||||||||||||||||||||||||||||||
| CMBS | |||||||||||||||||||||||||||||||||||
| RMBS | ( |
||||||||||||||||||||||||||||||||||
| Total AFS securities | ( |
||||||||||||||||||||||||||||||||||
| AFS securities – related party | |||||||||||||||||||||||||||||||||||
| CLO | |||||||||||||||||||||||||||||||||||
| ABS | |||||||||||||||||||||||||||||||||||
| Total AFS securities – related party | |||||||||||||||||||||||||||||||||||
| Total AFS securities including related party | $ | $ | $ | $ | ( |
$ | $ | ||||||||||||||||||||||||||||
1 Beginning balance reflects allowances established at the time of the Merger under purchase accounting for PCD investments.
| |||||||||||||||||||||||||||||||||||
Net Investment Income
Net investment income by asset class consists of the following:
| (In millions) | Three months ended March 31, 2022 | ||||
| AFS securities | $ | ||||
| Trading securities | |||||
| Equity securities | |||||
| Mortgage loans | |||||
| Investment funds | |||||
| Funds withheld at interest | |||||
| Other | |||||
| Investment revenue | |||||
| Investment expenses | ( |
||||
| Net investment income | $ | ||||
44
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Investment Related Gains (Losses)
Investment related gains (losses) by asset class consists of the following:
| (In millions) | Three months ended March 31, 2022 | ||||
| AFS securities | |||||
| Gross realized gains on investment activity | $ | ||||
| Gross realized losses on investment activity | ( |
||||
| Net realized investment losses on AFS securities | ( |
||||
| Net recognized investment losses on trading securities | ( |
||||
| Net recognized investment gains on equity securities | |||||
| Net recognized investment losses on mortgage loans | ( |
||||
| Derivative losses | ( |
||||
| Provision for credit losses | ( |
||||
| Other gains | |||||
| Investment related gains (losses) | $ | ( |
|||
Proceeds from sales of AFS securities were $298 million for the three months ended March 31, 2022.
The following table summarizes the change in unrealized gains (losses) on trading and equity securities held as of the respective period end:
| (In millions) | Three months ended March 31, 2022 | ||||
| Trading securities | $ | ( |
|||
| Trading securities – related party | ( |
||||
| Equity securities | |||||
| Equity securities – related party | ( |
||||
Repurchase Agreements
The following table summarizes the maturities of repurchase agreements:
| March 31, 2022 | |||||||||||||||||||||||||||||||||||
| Remaining Contractual Maturity | |||||||||||||||||||||||||||||||||||
| (In millions) | Overnight and continuous | Less than 30 days | 30-90 days | 91 days to 1 year | Greater than 1 year | Total | |||||||||||||||||||||||||||||
Payables for repurchase agreements1
|
$ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
1 Included in payables for collateral on derivatives and securities to repurchase on the condensed consolidated statements of financial condition.
| |||||||||||||||||||||||||||||||||||
The following table summarizes the securities pledged as collateral for repurchase agreements:
| March 31, 2022 | |||||||||||
| (In millions) | Amortized Cost | Fair Value | |||||||||
| AFS securities | |||||||||||
| U.S. government and agencies | $ | $ | |||||||||
| Corporate | |||||||||||
| CLO | |||||||||||
| Total securities pledged under repurchase agreements | $ | $ | |||||||||
45
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Reverse Repurchase Agreements
As of March 31, 2022, amounts loaned under reverse repurchase agreements were $26 million, and collateral received was $616 million.
Mortgage Loans, including related party and VIEs
Mortgage loans, at fair value, consists of the following:
| (In millions) | March 31, 2022 | ||||
| Commercial mortgage loans | $ | ||||
| Commercial mortgage loans under development | |||||
| Total commercial mortgage loans – unpaid principal balance | |||||
| Mark to fair value | ( |
||||
| Fair value of commercial mortgage loans | |||||
| Residential mortgage loans – unpaid principal balance | |||||
| Mark to fair value | ( |
||||
| Fair value of residential mortgage loans | |||||
| Mortgage loans | $ | ||||
Athene primarily invests in commercial mortgage loans on income producing properties including office and retail buildings, apartments, hotels, and industrial properties. Athene diversifies the commercial mortgage loan portfolio by geographic region and property type to reduce concentration risk. Athene evaluates mortgage loans based on relevant current information to confirm if properties are performing at a consistent and acceptable level to secure the related debt.
46
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The distribution of commercial mortgage loans, including those under development, by property type and geographic region is as follows:
| March 31, 2022 | |||||||||||
| (In millions) | Fair Value | Percentage of Total | |||||||||
| Property type | |||||||||||
| Office building | $ | % | |||||||||
| Retail | % | ||||||||||
| Apartment | % | ||||||||||
| Hotels | % | ||||||||||
| Industrial | % | ||||||||||
| Other commercial | % | ||||||||||
| Total commercial mortgage loans | $ | % | |||||||||
| US Region | |||||||||||
| East North Central | $ | % | |||||||||
| East South Central | % | ||||||||||
| Middle Atlantic | % | ||||||||||
| Mountain | % | ||||||||||
| New England | % | ||||||||||
| Pacific | % | ||||||||||
| South Atlantic | % | ||||||||||
| West North Central | % | ||||||||||
| West South Central | % | ||||||||||
| Total US Region | % | ||||||||||
| International Region | |||||||||||
| United Kingdom | % | ||||||||||
International Other1
|
% | ||||||||||
| Total International Region | % | ||||||||||
| Total commercial mortgage loans | $ | % | |||||||||
1 Represents all other countries, with each individual country comprising less than 5% of the portfolio.
| |||||||||||
Athene’s residential mortgage loan portfolio includes first lien residential mortgage loans collateralized by properties in various geographic locations and is summarized by proportion of the portfolio in the following table:
| (In millions) | March 31, 2022 | ||||
| US States | |||||
| California | % | ||||
| Florida | % | ||||
| New Jersey | % | ||||
Other1
|
% | ||||
| Total US residential mortgage loan percentage | % | ||||
| International | |||||
| Ireland | % | ||||
Other2
|
% | ||||
| Total international residential mortgage loan percentage | % | ||||
| Total residential mortgage loan percentage | % | ||||
1 Represents all other states, with each individual state comprising less than 5% of the portfolio.
| |||||
2 Represents all other countries, with each individual country comprising less than 5% of the portfolio.
| |||||
47
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Investment Funds
Athene’s investment fund portfolio consists of funds that employ various strategies and include investments in real estate, real assets, credit, equity and natural resources. Investment funds can meet the definition of VIEs. The investment funds do not specify timing of distributions on the funds’ underlying assets.
The following summarizes Athene’s investment funds, including related party and consolidated VIEs:
| March 31, 2022 | |||||||||||
| (In millions, except percentages) | Carrying value | Percent of total | |||||||||
| Investment funds | |||||||||||
| Real estate | $ | % | |||||||||
| Credit funds | % | ||||||||||
| Private equity | % | ||||||||||
| Real assets | % | ||||||||||
| Total investment funds | % | ||||||||||
| Investment funds – related parties | |||||||||||
| Differentiated investments | |||||||||||
Athora1
|
% | ||||||||||
Venerable1
|
% | ||||||||||
| Other | % | ||||||||||
| Total differentiated investments | % | ||||||||||
| Real estate | % | ||||||||||
| Credit funds | % | ||||||||||
| Private equity | % | ||||||||||
| Real assets | % | ||||||||||
| Natural resources | % | ||||||||||
| Public equities | % | ||||||||||
| Total investment funds – related parties | % | ||||||||||
| Investment funds owned by consolidated VIEs | |||||||||||
| Differentiated investments | % | ||||||||||
| Private equity | % | ||||||||||
| Natural resources | % | ||||||||||
| Real estate | % | ||||||||||
| Credit funds | % | ||||||||||
| Real assets | % | ||||||||||
| Total investment funds – assets of consolidated VIEs | % | ||||||||||
| Total investment funds including related party and funds owned by consolidated VIEs | $ | ||||||||||
1 Venerable investment is in its parent company, VA Capital Company LLC (VA Capital). See further discussion on this investment and the investment in Athora in note 16.
|
|||||||||||
Concentrations—The following represents Athene’s investment concentrations in excess of 10% of shareholders’ equity:
| (In millions) | March 31, 2022 | ||||
Athene Freedom1
|
$ | ||||
AP Tundra Holdings LLC2
|
|||||
MidCap2
|
|||||
PK Air1
|
|||||
| SoftBank Vision Fund II | |||||
AP Aristotle Holdings LLC2
|
|||||
1 Includes investments of the consolidated VIE, in which an underlying investment includes single issuers exceeding concentration threshold, and affiliated securities, if applicable and attributable to the single issuer. See further discussion of these investments in note 16.
| |||||
2 Represents a consolidated VIE investment in which an underlying investment includes a single issuer exceeding concentration threshold.
| |||||
48
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
5. Derivatives
The Company uses a variety of derivative instruments to manage risks, primarily equity, interest rate, credit, foreign currency and market volatility. See note 7 for information about the fair value hierarchy for derivatives.
The following table presents the notional amount and fair value of derivative instruments:
| March 31, 2022 | |||||||||||||||||
| Notional Amount | Fair Value | ||||||||||||||||
| (In millions) | Assets | Liabilities | |||||||||||||||
| Derivatives designated as hedges | |||||||||||||||||
| Foreign currency hedges | |||||||||||||||||
| Swaps | $ | $ | |||||||||||||||
| Forwards | |||||||||||||||||
| Interest rate swaps | |||||||||||||||||
| Forwards on net investments | |||||||||||||||||
| Interest rate swaps | |||||||||||||||||
| Total derivatives designated as hedges | |||||||||||||||||
| Derivatives not designated as hedges | |||||||||||||||||
| Equity options | |||||||||||||||||
| Futures | |||||||||||||||||
| Total return swaps | |||||||||||||||||
| Foreign currency swaps | |||||||||||||||||
| Interest rate swaps | |||||||||||||||||
| Credit default swaps | |||||||||||||||||
| Foreign currency forwards | |||||||||||||||||
| Embedded derivatives | |||||||||||||||||
| Funds withheld including related party | ( |
||||||||||||||||
| Interest sensitive contract liabilities | |||||||||||||||||
| Total derivatives not designated as hedges | |||||||||||||||||
| Total derivatives | $ | $ | |||||||||||||||
Derivatives Designated as Hedges
Fair Value Hedges
Athene uses foreign currency forward contracts, foreign currency interest rates swaps, and interest rate swaps that are designated and accounted for as fair value hedges to hedge certain exposures to foreign currency risk and interest rate risk. The foreign currency forward price is agreed upon at the time of the contract and payment is made at a specified future date.
The following represents the carrying amount and the cumulative fair value hedging adjustments included in the hedged assets or liabilities:
| March 31, 2022 | |||||||||||
| (In millions) |
Carrying amount of the hedged assets or liabilities1
|
Cumulative amount of fair value hedging gains (losses) | |||||||||
| AFS securities | |||||||||||
| Foreign currency forwards | $ | $ | ( |
||||||||
| Foreign currency swaps | ( |
||||||||||
| Interest sensitive contract liabilities | |||||||||||
| Foreign currency swaps | |||||||||||
| Foreign currency interest rate swaps | |||||||||||
| Interest rate swaps | |||||||||||
1 The carrying amount disclosed for AFS securities is amortized cost.
| |||||||||||
49
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following is a summary of the gains (losses) related to the derivatives and related hedged items in fair value hedge relationships:
| Amount Excluded | |||||||||||||||||||||||||||||
| (In millions) | Derivatives | Hedged Items | Net | Recognized in income through amortization approach | Recognized in income through changes in fair value | ||||||||||||||||||||||||
| Three months ended March 31, 2022 | |||||||||||||||||||||||||||||
| Investment related gains (losses) | |||||||||||||||||||||||||||||
| Foreign currency forwards | $ | $ | ( |
$ | $ | $ | |||||||||||||||||||||||
| Foreign currency swaps | ( |
( |
|||||||||||||||||||||||||||
| Foreign currency interest rate swaps | ( |
||||||||||||||||||||||||||||
| Interest rate swaps | ( |
||||||||||||||||||||||||||||
| Interest sensitive contract benefits | |||||||||||||||||||||||||||||
| Foreign currency interest rate swaps | ( |
||||||||||||||||||||||||||||
The following is a summary of the gains (losses) excluded from the assessment of hedge effectiveness that were recognized in OCI:
| (In millions) | Three months ended March 31, 2022 | ||||
| Foreign currency forwards | $ | ( |
|||
| Foreign currency swaps | ( |
||||
Net Investment Hedges
Athene uses foreign currency forwards to hedge the foreign currency exchange rate risk of its investments in subsidiaries that have a reporting currency other than the US dollar. Hedge effectiveness is assessed based on the changes in forward rates. During the three months ended March 31, 2022, these derivatives had gains of $2 million. These derivatives are included in foreign currency translation and other adjustments on the condensed consolidated statements of comprehensive income. As of March 31, 2022, the cumulative foreign currency translations recorded in AOCI related to these net investment hedges were gains of $2 million. During the three months ended March 31, 2022, there were no amounts deemed ineffective.
Derivatives Not Designated as Hedges
Equity options
Athene uses equity indexed options to economically hedge fixed indexed annuity products that guarantee the return of principal to the policyholder and credit interest based on a percentage of the gain in a specified market index, primarily the S&P 500. To hedge against adverse changes in equity indices, Athene enters into contracts to buy equity indexed options. The contracts are net settled in cash based on differentials in the indices at the time of exercise and the strike price.
Futures
Athene purchases futures contracts to hedge the growth in interest credited to the customer as a direct result of increases in the related indices. Athene enters into exchange-traded futures with regulated futures commission clearing brokers who are members of a trading exchange. Under exchange-traded futures contracts, Athene agrees to purchase a specified number of contracts with other parties and to post variation margin on a daily basis in an amount equal to the difference in the daily fair values of those contracts.
Total return swaps
Athene purchases total rate of return swaps to gain exposure and benefit from a reference asset or index without ownership. Total rate of return swaps are contracts in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of the underlying asset or index, which includes both the income it generates and any capital gains.
50
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Interest rate swaps
Athene uses interest rate swaps to reduce market risks from interest rate changes and to alter interest rate exposure arising from duration mismatches between assets and liabilities. With an interest rate swap, Athene agrees with another party to exchange the difference between fixed-rate and floating-rate interest amounts tied to an agreed upon notional principal amount at specified intervals.
Credit default swaps
Credit default swaps provide a measure of protection against the default of an issuer or allow the Company to gain credit exposure to an issuer or traded index. Athene uses credit default swaps coupled with a bond to synthetically create the characteristics of a reference bond. These transactions have a lower cost and are generally more liquid relative to the cash market. Athene receives a periodic premium for these transactions as compensation for accepting credit risk.
Hedging credit risk involves buying protection for existing credit risk. The exposure resulting from the agreements, which is usually the notional amount, is equal to the maximum proceeds that must be paid by a counterparty for a defaulted security. If a credit event occurs on a reference entity, then a counterparty who sold protection is required to pay the buyer the trade notional amount less any recovery value of the security.
Embedded derivatives
Athene has embedded derivatives which are required to be separated from their host contracts and reported as derivatives. Host contracts include reinsurance agreements structured on modco or funds withheld basis and indexed annuity products.
The following is a summary of the gains (losses) related to derivatives not designated as hedges:
| (In millions) | Three months ended March 31, 2022 | ||||
| Equity options | $ | ( |
|||
| Futures | ( |
||||
| Swaps | |||||
| Foreign currency forwards | |||||
| Embedded derivatives on funds withheld | ( |
||||
| Amounts recognized in investment related gains (losses) | ( |
||||
Embedded derivatives in indexed annuity products1
|
|||||
| Total gains (losses) on derivatives not designated as hedges | $ | ( |
|||
1 Included in interest sensitive contract benefits on the condensed consolidated statements of operations.
|
|||||
Credit Risk
The Company may be exposed to credit-related losses in the event of counterparty nonperformance on derivative financial instruments. Generally, the current credit exposure of Athene’s derivative contracts is the fair value at the reporting date less any collateral received from the counterparty.
Athene manages credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties. Where possible, Athene maintains collateral arrangements and uses master netting agreements that provide for a single net payment from one counterparty to another at each due date and upon termination. Athene has also established counterparty exposure limits, where possible, in order to evaluate if there is sufficient collateral to support the net exposure.
Collateral arrangements typically require the posting of collateral in connection with its derivative instruments. Collateral agreements often contain posting thresholds, some of which may vary depending on the posting party’s financial strength ratings. Additionally, a decrease in Athene’s financial strength rating to a specified level can result in settlement of the derivative position.
51
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The estimated fair value of net derivative and other financial assets and liabilities after the application of master netting agreements and collateral were as follows:
Gross amounts not offset on the condensed consolidated statements of financial condition |
|||||||||||||||||||||||||||||||||||
| (In millions) |
Gross amount recognized1
|
Financial instruments2
|
Collateral (received)/pledged | Net amount |
Off-balance sheet securities collateral3
|
Net amount after securities collateral | |||||||||||||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||||||||||||||
| Derivative assets | $ | $ | ( |
$ | ( |
$ | ( |
$ | $ | ( |
|||||||||||||||||||||||||
| Derivative liabilities | ( |
||||||||||||||||||||||||||||||||||
1 The gross amounts of recognized derivative assets and derivative liabilities are reported on the condensed consolidated statements of financial condition. As of March 31, 2022, amounts not subject to master netting or similar agreements were immaterial.
| |||||||||||||||||||||||||||||||||||
2 Represents amounts offsetting derivative assets and derivative liabilities that are subject to an enforceable master netting agreement or similar agreement that are not netted against the gross derivative assets or gross derivative liabilities for presentation on the condensed consolidated statements of financial condition.
| |||||||||||||||||||||||||||||||||||
3 For non-cash collateral received, the Company does not recognize the collateral on the condensed consolidated statement of financial condition unless the obligor (transferor) has defaulted under the terms of the secured contract and is no longer entitled to redeem the pledged asset. Amounts do not include any excess of collateral pledged or received.
| |||||||||||||||||||||||||||||||||||
Certain derivative instruments contain provisions for credit-related events, such as downgrades in Athene’s credit ratings or for a negative credit event of a credit default swap’s reference entity. If a credit event were to occur, the Company may be required to settle an outstanding liability. The following is a summary of Athene’s exposure to credit-related events:
| (In millions) | March 31, 2022 | ||||
| Fair value of derivative liabilities with credit related provisions | $ | ||||
| Maximum exposure for credit default swaps | |||||
6. Variable Interest Entities
A variable interest in a VIE is an investment or other interest that will absorb portions of the VIE’s expected losses and/or receive expected residual returns. Please refer to note 2 for more detail about the Company’s VIE assessment and consolidation policy. Variable interests in consolidated VIEs and unconsolidated VIEs are discussed separately below.
Consolidated VIEs
Consolidated VIEs include consolidated SPACs as well as certain CLOs and funds managed by the Company. The financial information for these consolidated SPACs are disclosed in note 16.
The assets of consolidated VIEs are not available to creditors of the Company, and the investors in these consolidated VIEs have no recourse against the assets of the Company. Similarly, there is no recourse to the Company for the consolidated VIEs’ liabilities.
Other assets of the consolidated funds include interest receivables and receivables from affiliates. Other liabilities include debt held at amortized cost as well as short-term payables.
Each series of notes in a respective consolidated VIE participates in distributions from the VIE, including principal and interest from underlying investments. Amounts allocated to the noteholders reflect amounts that would be distributed if the VIE’s affairs were wound up and its assets sold for cash equal to their respective carrying values, its liabilities satisfied in accordance with their terms, and all the remaining amounts distributed to the noteholders. The respective VIEs that issue the notes payable are marked at their prevailing net asset value, which approximates fair value.
Results from certain funds managed by Apollo are reported on a three-month lag based upon the availability of financial information.
52
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Net Gains (Losses) from Investment Activities of Consolidated Variable Interest Entities—Asset Management
The following table presents net gains(losses) from investment activities of the consolidated VIEs:
| Three months ended March 31, | |||||||||||
| (In millions) |
20221
|
20211
|
|||||||||
| Net gains (losses) from investment activities | $ | $ | |||||||||
| Net gains (losses) from debt | ( |
||||||||||
| Interest and other income | |||||||||||
| Interest and other expenses | ( |
( |
|||||||||
| Net gains from investment activities of consolidated variable interest entities | $ | $ | |||||||||
1 Amounts reflect consolidation eliminations
| |||||||||||
Senior Secured Notes, Subordinated Notes and Secured Borrowings
Included within debt, at fair value and other liabilities are amounts due to third-party institutions by the consolidated VIEs. The following table summarizes the principal provisions of those amounts:
| As of March 31, 2022 | As of December 31, 2021 | ||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | Principal Outstanding | Weighted Average Interest Rate | Weighted Average Remaining Maturity in Years | Principal Outstanding | Weighted Average Interest Rate | Weighted Average Remaining Maturity in Years | |||||||||||||||||||||||||||||
| Asset Management | |||||||||||||||||||||||||||||||||||
| Senior secured notes | $ | % | $ | % | |||||||||||||||||||||||||||||||
| Subordinated notes | N/A | 1 |
N/A | 1 |
|||||||||||||||||||||||||||||||
Secured borrowings2
|
N/A | N/A | % | ||||||||||||||||||||||||||||||||
Total – Asset Management |
$ | $ | |||||||||||||||||||||||||||||||||
| Retirement Services | |||||||||||||||||||||||||||||||||||
| Senior secured notes | $ | % | |||||||||||||||||||||||||||||||||
Subordinated notes3
|
N/A | N/A | |||||||||||||||||||||||||||||||||
Secured and other borrowings3
|
N/A | N/A | |||||||||||||||||||||||||||||||||
Total – Retirement Services |
$ | ||||||||||||||||||||||||||||||||||
1 The principal outstanding balance of the subordinated notes do not have contractual interest rates but instead receive distributions from the excess cash flows of the VIEs.
| |||||||||||||||||||||||||||||||||||
2 As of March 31, 2022, there was no principal outstanding for secured borrowings. As of December 31, 2021, secured borrowings consist of consolidated VIEs’ obligations through a repurchase agreement redeemable at maturity with third party lenders. The fair value of the secured borrowings as of December 31, 2021 approximates principal outstanding due to the short-term nature of the borrowings. These secured borrowings are classified as a Level 3 liability within the fair value hierarchy.
| |||||||||||||||||||||||||||||||||||
3 The principal outstanding balances of the subordinated notes do not have contractual interest rates or maturities but instead receive distributions from the excess cash flows of the VIEs. Secured and other borrowings do not generally have principal balances, stated rates and maturities and are included at carrying value.
| |||||||||||||||||||||||||||||||||||
The consolidated VIEs’ debt obligations contain various customary loan covenants. As of March 31, 2022, the Company was not aware of any instances of non-compliance with any of these covenants.
Unconsolidated Variable Interest Entities—Asset Management
53
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| As of | As of | ||||||||||
| (In millions) | March 31, 2022 | 2 |
December 31, 2021 | ||||||||
Maximum Loss Exposure1
|
$ | $ | |||||||||
1 Represents Apollo’s direct investment in those entities in which it holds a significant variable interest and certain other investments. Additionally, cumulative performance allocations are subject to reversal in the event of future losses.
| |||||||||||
2 Some amounts included are a quarter in arrears.
| |||||||||||
Unconsolidated Variable Interest Entities— Retirement Services
The Company has variable interests in certain unconsolidated VIEs in the form of securities and ownership stakes in investment funds.
Fixed maturity securities
Athene invests in securitization entities as a debt holder or an investor in the residual interest of the securitization vehicle. These entities are deemed VIEs due to insufficient equity within the structure and lack of control by the equity investors over the activities that significantly impact the economics of the entity. In general, Athene is a debt investor within these entities and, as such, hold a variable interest; however, due to the debt holders’ lack of ability to control the decisions within the trust that significantly impact the entity, and the fact the debt holders are protected from losses due to the subordination of the equity tranche, the debt holders are not deemed the primary beneficiary. Securitization vehicles in which Athene holds the residual tranche are not consolidated because Athene does not unilaterally have substantive rights to remove the general partner, or when assessing related party interests, Athene is not under common control, as defined by U.S. GAAP, with the related party, nor are substantially all of the activities conducted on Athene’s behalf; therefore, Athene is not deemed the primary beneficiary. Debt investments and investments in the residual tranche of securitization entities are considered debt instruments and are held at fair value on the condensed consolidated statements of financial condition and classified as AFS or trading.
Investment funds
Investment funds include non-fixed income, alternative investments in the form of limited partnerships or similar legal structures.
Equity securities
Athene invests in preferred equity securities issued by entities deemed to be VIEs due to insufficient equity within the structure.
Athene’s risk of loss associated with its non-consolidated investments depends on the investment. Investment funds, equity securities and trading securities are limited to the carrying value plus unfunded commitments. AFS securities are limited to amortized cost plus unfunded commitments.
The following summarizes the carrying value and maximum loss exposure of these non-consolidated investments:
| March 31, 2022 | |||||||||||
| (In millions) | Carrying Value | Maximum Loss Exposure | |||||||||
| Investment funds | $ | $ | |||||||||
| Investment in related parties – investment funds | |||||||||||
| Assets of consolidated VIEs – investment funds | |||||||||||
| Investment in fixed maturity securities | |||||||||||
| Investment in related parties – fixed maturity securities | |||||||||||
| Investment in related parties – equity securities | |||||||||||
| Total non-consolidated investments | $ | $ | |||||||||
54
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
7. Fair Value
Fair Value Measurements of Financial Instruments
The following summarize the Company’s financial assets and liabilities recorded at fair value hierarchy level:
| March 31, 2022 | |||||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||
Asset Management |
|||||||||||||||||||||||||||||
Cash and cash equivalents1
|
$ | $ | — | $ | — | $ | — | $ | |||||||||||||||||||||
Restricted cash and cash equivalents2
|
— | — | — | ||||||||||||||||||||||||||
U.S. Treasury securities3
|
— | ||||||||||||||||||||||||||||
| Investments, at fair value | 4 |
— | |||||||||||||||||||||||||||
| Investments of VIEs | |||||||||||||||||||||||||||||
Due from related parties5
|
— | ||||||||||||||||||||||||||||
Derivative assets6
|
— | ||||||||||||||||||||||||||||
Total Assets – Asset Management |
|||||||||||||||||||||||||||||
Retirement Services |
|||||||||||||||||||||||||||||
| AFS Securities | |||||||||||||||||||||||||||||
| US government and agencies | — | ||||||||||||||||||||||||||||
| US state, municipal and political subdivisions | — | ||||||||||||||||||||||||||||
| Foreign governments | — | ||||||||||||||||||||||||||||
| Corporate | — | ||||||||||||||||||||||||||||
| CLO | — | ||||||||||||||||||||||||||||
| ABS | — | ||||||||||||||||||||||||||||
| CMBS | — | ||||||||||||||||||||||||||||
| RMBS | — | ||||||||||||||||||||||||||||
| Total AFS securities | — | ||||||||||||||||||||||||||||
| Trading securities | |||||||||||||||||||||||||||||
| US government and agencies | — | ||||||||||||||||||||||||||||
| US state, municipal and political subdivisions | — | ||||||||||||||||||||||||||||
| Foreign Governments | — | ||||||||||||||||||||||||||||
| Corporate | — | ||||||||||||||||||||||||||||
| CLO | — | ||||||||||||||||||||||||||||
| ABS | — | ||||||||||||||||||||||||||||
| CMBS | — | ||||||||||||||||||||||||||||
| RMBS | — | ||||||||||||||||||||||||||||
| Total trading securities | — | ||||||||||||||||||||||||||||
| Equity securities | — | ||||||||||||||||||||||||||||
| Mortgage loans | — | ||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||
| Funds withheld at interest – embedded derivative | ( |
— | ( |
||||||||||||||||||||||||||
| Derivative assets | — | ||||||||||||||||||||||||||||
| Short-term investments | — | ||||||||||||||||||||||||||||
| Other investments | — | ||||||||||||||||||||||||||||
| Cash and cash equivalents | — | ||||||||||||||||||||||||||||
| Restricted cash and cash equivalents | — | ||||||||||||||||||||||||||||
| Investments in related parties | |||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||
| Corporate | — | ||||||||||||||||||||||||||||
| CLO | — | ||||||||||||||||||||||||||||
| ABS | — | ||||||||||||||||||||||||||||
| Total AFS securities – related party | — | ||||||||||||||||||||||||||||
| Trading securities | |||||||||||||||||||||||||||||
| CLO | — | ||||||||||||||||||||||||||||
| ABS | — | ||||||||||||||||||||||||||||
55
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| March 31, 2022 | |||||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||||||||||||||||
| Total trading securities – related party | — | ||||||||||||||||||||||||||||
| Equity securities | — | ||||||||||||||||||||||||||||
| Related party mortgage loans | — | ||||||||||||||||||||||||||||
| Investment funds | — | ||||||||||||||||||||||||||||
| Funds withheld at interest – embedded derivative | ( |
— | ( |
||||||||||||||||||||||||||
| Short-term investments | — | ||||||||||||||||||||||||||||
| Reinsurance recoverable | — | ||||||||||||||||||||||||||||
| Assets of consolidated VIEs | |||||||||||||||||||||||||||||
| Mortgage loans | — | ||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||
| Other investments | — | ||||||||||||||||||||||||||||
| Cash and cash equivalents | — | ||||||||||||||||||||||||||||
Total Assets – Retirement Services |
|||||||||||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
Asset Management |
|||||||||||||||||||||||||||||
| Debt of VIEs, at fair value | — | ||||||||||||||||||||||||||||
| Other liabilities of VIEs, at fair value | — | ||||||||||||||||||||||||||||
Contingent consideration obligations7
|
— | ||||||||||||||||||||||||||||
Other liabilities8
|
— | ||||||||||||||||||||||||||||
Derivative liabilities6
|
— | ||||||||||||||||||||||||||||
Total Liabilities – Asset Management |
$ | $ | $ | $ | $ | ||||||||||||||||||||||||
Retirement Services |
|||||||||||||||||||||||||||||
| Interest sensitive contract liabilities | |||||||||||||||||||||||||||||
| Embedded derivative | — | ||||||||||||||||||||||||||||
| Universal life benefits | — | ||||||||||||||||||||||||||||
| Future policy benefits | |||||||||||||||||||||||||||||
| AmerUs closed block | — | ||||||||||||||||||||||||||||
| ILICO closed block and life benefits | — | ||||||||||||||||||||||||||||
| Derivative liabilities | ( |
— | |||||||||||||||||||||||||||
| Liabilities of consolidated VIEs – debt | — | ||||||||||||||||||||||||||||
Total Liabilities – Retirement Services |
( |
— | |||||||||||||||||||||||||||
| Total Liabilities | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||
| (Concluded) | |||||||||||||||||||||||||||||
56
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| December 31, 2021 | |||||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||||||||||||||||
Assets – Asset Management |
|||||||||||||||||||||||||||||
Cash and cash equivalents1
|
$ | $ | — | $ | — | $ | — | $ | |||||||||||||||||||||
Restricted cash and cash equivalents2
|
— | — | — | ||||||||||||||||||||||||||
U.S. Treasury securities3
|
— | ||||||||||||||||||||||||||||
| Investment in Athene Holding | — | ||||||||||||||||||||||||||||
| Other investments | 4 |
— | |||||||||||||||||||||||||||
| Investments of VIEs | |||||||||||||||||||||||||||||
Due from related parties5
|
— | ||||||||||||||||||||||||||||
Derivative assets6
|
— | ||||||||||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Liabilities – Asset Management |
|||||||||||||||||||||||||||||
| Debt of VIEs, at fair value | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||
| Other liabilities of VIEs, at fair value | |||||||||||||||||||||||||||||
Contingent consideration obligations7
|
— | ||||||||||||||||||||||||||||
Other liabilities8
|
— | ||||||||||||||||||||||||||||
Derivative liabilities6
|
— | ||||||||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
1 Cash and cash equivalents as of March 31, 2022 and December 31, 2021 includes $ | |||||||||||||||||||||||||||||
2 Restricted cash and cash equivalents as of March 31, 2022 and December 31, 2021 includes $ | |||||||||||||||||||||||||||||
3 U.S. Treasury securities as of March 31, 2022 and December 31, 2021 includes $ | |||||||||||||||||||||||||||||
4 Investments as of March 31, 2022 and December 31, 2021 excludes $ | |||||||||||||||||||||||||||||
5 Due from related parties represents a receivable from a fund.
| |||||||||||||||||||||||||||||
6 Derivative assets and derivative liabilities are presented as a component of Other assets and Other liabilities, respectively, in the condensed consolidated statements of financial condition.
| |||||||||||||||||||||||||||||
7 Profit sharing payable includes contingent obligations classified as Level 3.
| |||||||||||||||||||||||||||||
8 Other liabilities includes the publicly traded warrants of APSG I and APSG II.
| |||||||||||||||||||||||||||||
Changes in fair value of contingent consideration obligations are recorded in compensation and benefits expense in the condensed consolidated statements of operations.
57
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Level 3 Financial Instruments
The following tables summarize the valuation techniques and quantitative inputs and assumptions used for financial assets and liabilities categorized as Level 3:
| March 31, 2022 | ||||||||||||||||||||||||||||||||
|
Fair Value
(In millions)
|
Valuation Technique | Unobservable Inputs | Ranges | Weighted Average | ||||||||||||||||||||||||||||
| Financial Assets | ||||||||||||||||||||||||||||||||
| Asset Management | ||||||||||||||||||||||||||||||||
| Investments | $ | Embedded value | N/A | N/A | N/A | |||||||||||||||||||||||||||
| Discounted cash flow | Discount rate | 14.0% - 52.8% | 1 |
|||||||||||||||||||||||||||||
| Adjusted transaction value | N/A | N/A | N/A | |||||||||||||||||||||||||||||
| Due from related parties | Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
| Investments of consolidated VIEs | ||||||||||||||||||||||||||||||||
| Equity securities | Dividend discount model | Discount rate | 1 |
|||||||||||||||||||||||||||||
| Discounted cash flow | Discount rate | 16.0% - 40.0% | 1 |
|||||||||||||||||||||||||||||
| Adjusted transaction value | N/A | N/A | N/A | |||||||||||||||||||||||||||||
| Bank loans | Adjusted transaction value | N/A | N/A | N/A | ||||||||||||||||||||||||||||
| Warrants | Option model | Volatility rate | 35.0% -56.0% | 1 |
||||||||||||||||||||||||||||
| Retirement Services | ||||||||||||||||||||||||||||||||
| AFS and trading securities | Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
| Mortgage loans | Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||||||||||||||
| Asset Management | ||||||||||||||||||||||||||||||||
| Contingent Consideration Obligation | Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
| Retirement Services | ||||||||||||||||||||||||||||||||
| Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives | Discounted cash flow | Nonperformance risk | 2 |
|||||||||||||||||||||||||||||
| Option budget | 3 |
|||||||||||||||||||||||||||||||
| Surrender rate | 4 |
|||||||||||||||||||||||||||||||
1 Unobservable inputs were weighted based on the fair value of the investments included in the range.
| ||||||||||||||||||||||||||||||||
2 The nonperformance risk weighted average is based on the projected excess benefits of reserves used in the calculation of the embedded derivative.
| ||||||||||||||||||||||||||||||||
3 The option budget weighted average is calculated based on the indexed account values.
| ||||||||||||||||||||||||||||||||
4 The surrender rate weighted average is calculated based on projected account values.
| ||||||||||||||||||||||||||||||||
58
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| December 31, 2021 | ||||||||||||||||||||||||||
|
Fair Value
(In millions)
|
Valuation Techniques | Unobservable Inputs | Ranges |
Weighted Average (1)
|
||||||||||||||||||||||
| Financial Assets | ||||||||||||||||||||||||||
| Other investments | $ | Embedded value | N/A | N/A | N/A | |||||||||||||||||||||
| Discounted cash flow | Discount rate | 14.0% - 52.8% | ||||||||||||||||||||||||
| Adjusted transaction value | N/A | N/A | N/A | |||||||||||||||||||||||
| Due from related parties | Discounted cash flow | Discount rate | ||||||||||||||||||||||||
| Investments of consolidated VIEs: | ||||||||||||||||||||||||||
| Equity securities | Discounted cash flow | Discount rate | 3.0% - 19.0% | |||||||||||||||||||||||
| Dividend discount model | Discount rate | |||||||||||||||||||||||||
| Market comparable companies | NTAV multiple | 1.25x | 1.25x | |||||||||||||||||||||||
| Adjusted transaction value | Purchase multiple | 1.25x | 1.25x | |||||||||||||||||||||||
| Adjusted transaction value | N/A | N/A | N/A | |||||||||||||||||||||||
| Bank loans | Discounted cash flow | Discount rate | 1.8% - 15.6% | |||||||||||||||||||||||
| Adjusted transaction value | N/A | N/A | N/A | |||||||||||||||||||||||
| Profit participating notes | Discounted cash flow | Discount rate | 8.7% - 12.5% | |||||||||||||||||||||||
| Adjusted transaction value | N/A | N/A | N/A | |||||||||||||||||||||||
| Real estate | Discounted cash flow | Capitalization rate | 4.0% - 5.8% | |||||||||||||||||||||||
| Discounted cash flow | Discount rate | 5.0% - 12.5% | ||||||||||||||||||||||||
| Discounted cash flow | Terminal capitalization rate | |||||||||||||||||||||||||
| Direct capitalization | Capitalization rate | 5.5% - 8.5% | ||||||||||||||||||||||||
| Direct capitalization | Terminal capitalization rate | 6.0% - 12.0% | ||||||||||||||||||||||||
| Bonds | Discounted cash flow | Discount rate | 4.0% - 7.0% | |||||||||||||||||||||||
| Third party pricing | N/A | N/A | N/A | |||||||||||||||||||||||
| Other equity investments | Discounted cash flow | Discount rate | 11.8% -12.5% | |||||||||||||||||||||||
| Adjusted transaction value | N/A | N/A | N/A | |||||||||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||||||||
| Liabilities of Consolidated VIEs: | ||||||||||||||||||||||||||
| Secured loans | Discounted cash flow | Discount rate | 1.4% - 10.0% | |||||||||||||||||||||||
| Subordinated notes | Discounted cash flow | Discount rate | 4.5% - 11.9% | |||||||||||||||||||||||
| Participating equity | Discounted cash flow | Discount rate | ||||||||||||||||||||||||
| Other liabilities | Discounted cash flow | Discount rate | 3.7% - 9.3% | |||||||||||||||||||||||
| Contingent Consideration Obligation | Discounted cash flow | Discount rate | ||||||||||||||||||||||||
The following are reconciliations for Level 3 assets and liabilities measured at fair value on a recurring basis:
| March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total realized and unrealized gains (losses) | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Beginning balance | Included in income | Included in OCI | Net purchases, issuances, sales and settlements | Net transfers in (out) | Ending balance |
Total gains (losses) included in earnings(1)
|
Total gains (losses) included in OCI(1)
|
|||||||||||||||||||||||||||||||||||||||
Assets – Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Investments | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Investments of Consolidated VIEs | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 Assets – Asset Management |
$ | $ | $ | $ | ( |
$ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Assets – Retirement Services |
|||||||||||||||||||||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign governments | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Corporate | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| ABS | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| CMBS | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Trading securities | |||||||||||||||||||||||||||||||||||||||||||||||
59
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| CLO | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| ABS | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| RMBS | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||||||||||||||||||||
| Funds withheld at interest – embedded derivative | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Short-term investments | |||||||||||||||||||||||||||||||||||||||||||||||
| Investments in related parties | |||||||||||||||||||||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| CLO | |||||||||||||||||||||||||||||||||||||||||||||||
| ABS | ( |
( |
( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||
| Trading securities | |||||||||||||||||||||||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| ABS | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Investment funds | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Short-term investments | |||||||||||||||||||||||||||||||||||||||||||||||
| Funds withheld at interest – embedded derivative | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Reinsurance recoverable | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| Assets of consolidated VIEs | |||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Investment funds | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets – Retirement Services |
$ | $ | ( |
$ | ( |
$ | $ | $ | $ | ( |
$ | ( |
|||||||||||||||||||||||||||||||||||
Liabilities – Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Contingent consideration obligations | $ | $ | ( |
$ | $ | ( |
$ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Debt and other liabilities of consolidated VIEs | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 liabilities – Asset Management |
$ | $ | ( |
$ | $ | $ | ( |
$ | $ | $ | |||||||||||||||||||||||||||||||||||||
Liabilities – Retirement Services |
|||||||||||||||||||||||||||||||||||||||||||||||
| Interest sensitive contract liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Embedded derivative | $ | ( |
$ | $ | $ | ( |
$ | $ | ( |
$ | $ | ||||||||||||||||||||||||||||||||||||
| Universal life benefits | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Future policy benefits | |||||||||||||||||||||||||||||||||||||||||||||||
| AmerUs Closed Block | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| ILICO Closed Block and life benefits | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Derivative liabilities | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Liabilities of consolidated VIEs – debt | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Total Level 3 liabilities | $ | ( |
$ | $ | $ | ( |
$ | ( |
$ | ( |
$ | $ | |||||||||||||||||||||||||||||||||||
1 Related to instruments held at end of period.
|
|||||||||||||||||||||||||||||||||||||||||||||||
60
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total realized and unrealized gains (losses) | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Beginning balance | Included in income | Included in OCI | Net purchases, issuances, sales and settlements | Net transfers in (out) | Ending balance |
Total gains (losses) included in earnings(1)
|
Total gains (losses) included in OCI(1)
|
|||||||||||||||||||||||||||||||||||||||
Assets – Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Investments of Consolidated VIEs | $ | $ | $ | $ | $ | ( |
$ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Other Investments | |||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets – Asset Management |
$ | $ | $ | $ | $ | ( |
$ | $ | $ | ||||||||||||||||||||||||||||||||||||||
Liabilities – Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Contingent consideration obligations | $ | $ | $ | $ | ( |
$ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Debt and other liabilities of consolidated VIEs | |||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 liabilities – Asset Management |
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
1 Related to instruments held at end of period.
|
|||||||||||||||||||||||||||||||||||||||||||||||
The following represents the gross components of purchases, issuances, sales and settlements, net, and net transfers in (out) shown above:
| March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Purchases | Issuances | Sales | Settlements | Net purchases, issuances, sales and settlements |
Transfers In1
|
Transfers Out2
|
Net Transfers In (Out) | |||||||||||||||||||||||||||||||||||||||
Assets – Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Investments | $ | $ | $ | ( |
$ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Investments of consolidated VIEs | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets – Asset Management |
$ | $ | $ | ( |
$ | $ | $ | $ | ( |
$ | ( |
||||||||||||||||||||||||||||||||||||
Assets – Retirement Services |
|||||||||||||||||||||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate | $ | $ | $ | ( |
$ | ( |
$ | $ | $ | ( |
$ | ||||||||||||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| ABS | ( |
( |
( |
( |
|||||||||||||||||||||||||||||||||||||||||||
| CMBS | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Trading securities | |||||||||||||||||||||||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| ABS | |||||||||||||||||||||||||||||||||||||||||||||||
| RMBS | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Short-term investments | |||||||||||||||||||||||||||||||||||||||||||||||
| Funds withheld at interest – embedded derivative | |||||||||||||||||||||||||||||||||||||||||||||||
| Investments in related parties | |||||||||||||||||||||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| CLO | |||||||||||||||||||||||||||||||||||||||||||||||
| ABS | ( |
( |
( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||
| Trading securities | |||||||||||||||||||||||||||||||||||||||||||||||
| CLO | ( |
( |
( |
( |
|||||||||||||||||||||||||||||||||||||||||||
| ABS | ( |
( |
( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | ( |
||||||||||||||||||||||||||||||||||||||||||||||
61
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| Investment funds | ( |
( |
( |
( |
|||||||||||||||||||||||||||||||||||||||||||
| Short-term investments | |||||||||||||||||||||||||||||||||||||||||||||||
| Assets of consolidated VIEs | |||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Investment funds | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets – Retirement Services |
$ | $ | $ | ( |
$ | ( |
$ | $ | $ | ( |
$ | ||||||||||||||||||||||||||||||||||||
Liabilities - Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Contingent consideration obligations | $ | $ | $ | $ | ( |
$ | ( |
$ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Debt and other liabilities of consolidated VIEs | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 liabilities – Asset Management |
$ | $ | $ | $ | ( |
$ | $ | $ | ( |
$ | ( |
||||||||||||||||||||||||||||||||||||
Liabilities – Retirement Services |
|||||||||||||||||||||||||||||||||||||||||||||||
| Interest sensitive contract liabilities - Embedded derivative | $ | $ | ( |
$ | $ | $ | ( |
$ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Liabilities of consolidated VIEs – debt | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 liabilities – Retirement Services |
$ | $ | ( |
$ | $ | $ | ( |
$ | ( |
$ | $ | ( |
|||||||||||||||||||||||||||||||||||
1 Transfers in includes assets and liabilities of consolidated VIEs that Athene consolidated effective March 31, 2022 ($ | |||||||||||||||||||||||||||||||||||||||||||||||
2 Transfers out includes the elimination of investments in related party securities issued by VIEs that Athene consolidated effective March 31, 2022 ($ | |||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Purchases | Issuances | Sales | Settlements | Net purchases, issuances, sales and settlements | Transfers In | Transfers Out | Net Transfers In (Out) | |||||||||||||||||||||||||||||||||||||||
Assets – Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Investments of consolidated VIEs | $ | $ | $ | ( |
$ | $ | $ | $ | ( |
$ | ( |
||||||||||||||||||||||||||||||||||||
Total Level 3 assets – Asset Management |
$ | $ | $ | ( |
$ | $ | $ | $ | ( |
$ | ( |
||||||||||||||||||||||||||||||||||||
Liabilities - Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Contingent consideration obligations | $ | $ | $ | $ | ( |
$ | ( |
$ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Debt and other liabilities of consolidated VIEs | ( |
||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 liabilities – Asset Management |
$ | $ | $ | $ | ( |
$ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
Fair Value Option - Retirement Services
The following represents the gains (losses) recorded for instruments for which Athene has elected the fair value option, including related parties and VIEs:
| (In millions) | Three months ended March 31, 2022 | ||||
| Trading securities | $ | ( |
|||
| Mortgage loans | ( |
||||
| Investment funds | |||||
| Future policy benefits | |||||
| Total gains (losses) | $ | ( |
|||
62
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Gains and losses on trading securities are recorded in investment related gains (losses) on the condensed consolidated statements of operations. For fair value option mortgage loans, interest income is recorded in net investment income and subsequent changes in fair value in investment related gains (losses) on the condensed consolidated statements of operations. Gains and losses related to investment funds, including related party investment funds, are recorded in net investment income on the condensed consolidated statements of operations. The change in fair value of future policy benefits is recorded to future policy and other policy benefits on the condensed consolidated statements of operations.
The following summarizes information for fair value option mortgage loans including related parties and VIEs:
| (In millions) | March 31, 2022 | ||||
| Unpaid principal balance | $ | ||||
| Mark to fair value | ( |
||||
| Fair value | $ | ||||
The following represents the commercial mortgage loan portfolio 90 days or more past due and/or in non-accrual status:
| (In millions) | March 31, 2022 | ||||
| Unpaid principal balance of commercial mortgage loans 90 days or more past due and/or in non-accrual status | $ | ||||
| Mark to fair value of commercial mortgage loans 90 days or more past due and/or in non-accrual status | ( |
||||
| Fair value of commercial mortgage loans 90 days or more past due and/or in non-accrual status | $ | ||||
| Fair value of commercial mortgage loans 90 days or more past due | $ | ||||
| Fair value of commercial mortgage loans in non-accrual status | |||||
The following represents the residential loan portfolio 90 days or more past due and/or in non-accrual status:
| (In millions) | March 31, 2022 | ||||
| Unpaid principal balance of residential mortgage loans 90 days or more past due and/or in non-accrual status | $ | ||||
| Mark to fair value of residential mortgage loans 90 days or more past due and/or in non-accrual status | ( |
||||
| Fair value of residential mortgage loans 90 days or more past due and/or in non-accrual status | $ | ||||
Fair value of residential mortgage loans 90 days or more past due1
|
$ | ||||
| Fair value of residential mortgage loans in non-accrual status | |||||
1 Includes $ | |||||
The following is the estimated amount of gains (losses) included in earnings during the period attributable to changes in instrument-specific credit risk on our mortgage loan portfolio:
| (In millions) | Three months ended March 31, 2022 | ||||
| Mortgage loans | $ | ( |
|||
The portion of gains and losses attributable to changes in instrument-specific credit risk is estimated by identifying commercial loans with loan-to-value ratios meeting credit quality criteria, and residential mortgage loans with delinquency status meeting credit quality criteria.
Financial Instruments Without Readily Determinable Fair Values
Athene has elected the measurement alternative for certain equity securities that do not have a readily determinable fair value. As of March 31, 2022, the carrying amount of the equity securities was $400 million with no cumulative recorded impairment.
63
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Fair Value of Financial Instruments Not Carried at Fair Value - Retirement Services
The following represents Athene’s financial instruments not carried at fair value on the condensed consolidated statements of financial condition:
| March 31, 2022 | |||||||||||||||||||||||||||||||||||
| (In millions) | Carrying Value | Fair Value | NAV | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||
| Financial assets | |||||||||||||||||||||||||||||||||||
| Investment funds | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Policy loans | |||||||||||||||||||||||||||||||||||
| Funds withheld at interest | |||||||||||||||||||||||||||||||||||
| Short-term investments | |||||||||||||||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||||||||||||||
| Investments in related parties | |||||||||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||||||||
| Funds withheld at interest | |||||||||||||||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||||||||||||||
| Assets of consolidated VIEs – investment funds | |||||||||||||||||||||||||||||||||||
| Total financial assets not carried at fair value | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Financial liabilities | |||||||||||||||||||||||||||||||||||
| Interest sensitive contract liabilities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Debt | |||||||||||||||||||||||||||||||||||
| Securities to repurchase | |||||||||||||||||||||||||||||||||||
| Liabilities of consolidated VIEs – debt | |||||||||||||||||||||||||||||||||||
| Total financial liabilities not carried at fair value | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The fair value for financial instruments not carried at fair value are estimated using the same methods and assumptions as those carried at fair value. The financial instruments presented above are reported at carrying value on the condensed consolidated statements of financial condition; however, in the case of policy loans, funds withheld at interest, short-term investments, and securities to repurchase, the carrying amount approximates fair value.
Other investments
The fair value of other investments is determined using a discounted cash flow model using discount rates for similar investments.
Interest sensitive contract liabilities
The carrying and fair value of interest sensitive contract liabilities above includes fixed indexed and traditional fixed annuities without mortality or morbidity risks, funding agreements and payout annuities without life contingencies. The embedded derivatives within fixed indexed annuities without mortality or morbidity risks are excluded, as they are carried at fair value. The valuation of these investment contracts is based on discounted cash flow methodologies using significant unobservable inputs. The estimated fair value is determined using current market risk-free interest rates, adding a spread to reflect nonperformance risk and subtracting a risk margin to reflect uncertainty inherent in the projected cash flows.
Long-term Debt
The fair value of long-term debt is obtained from commercial pricing services. These are classified as Level 2. The pricing services incorporate a variety of market observable information in their valuation techniques, including benchmark yields, trading activity, credit quality, issuer spreads, bids, offers and other reference data.
Significant Unobservable Inputs
64
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Asset Management
Consolidated VIEs Investments
The significant unobservable inputs used in the fair value measurement of the equity securities and bank loans include the discount rate applied, purchase multiple and net tangible asset value in the valuation models. These unobservable inputs in isolation can cause significant increases or decreases in fair value. The discount rate is determined based on the market rates an investor would expect for a similar investment with similar risks.
The significant unobservable inputs used in the fair value measurement of warrants are volatility rates. Significant increases (decreases) in volatility rates would result in significantly higher (lower) fair value measurements.
The significant unobservable inputs used in the fair value measurement of bonds, profit participating notes, and other equity investments are discount rates. Significant increases (decreases) in discount rates would result in significantly lower (higher) fair value measurements.
The significant unobservable inputs used in the fair value measurement of real estate are discount rates and capitalization rates. Significant increases (decreases) in any discount rates or capitalization rates in isolation would result in a significantly lower (higher) fair value measurement.
Certain investments of VIEs are valued using the NAV per share equivalent calculated by the investment manager as a practical expedient to determine an independent fair value.
Consolidated VIEs Liabilities
The debt obligations of certain consolidated VIEs, that are CLOs, were measured on the basis of the fair value of the financial assets of those CLOs as the financial assets were determined to be more observable and, as a result, categorized as Level II in the fair value hierarchy.
The significant unobservable inputs used in the fair value measurement of the Company’s liabilities of consolidated VIEs are discount rates. Significant increases (decreases) in discount rates would result in a significantly lower (higher) fair value measurement.
Certain liabilities of VIEs are valued using the NAV per share equivalent calculated by the investment manager as a practical expedient to determine an independent fair value.
Contingent Consideration Obligations
The significant unobservable input used in the fair value measurement of the contingent consideration obligations is the discount rate applied in the valuation models. This input in isolation can cause significant increases or decreases in fair value. The discount rate was based on the hypothetical cost of equity in connection with the acquisition of Stone Tower. See note 17 for further discussion of the contingent consideration obligations.
Retirement Services
AFS and trading securities
Athene uses discounted cash flow models to calculate the fair value for certain fixed maturity securities. The discount rate is a significant unobservable input because the credit spread includes adjustments made to the base rate. The base rate represents a market comparable rate for securities with similar characteristics. This excludes assets for which fair value is provided by independent broker quotes.
Mortgage loans
Athene uses discounted cash flow models from independent commercial pricing services to calculate the fair value of its mortgage loan portfolio. The discount rate is a significant unobservable input. This approach uses market transaction information and client portfolio-oriented information, such as prepayments or defaults, to support the valuations.
65
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Interest sensitive contract liabilities – embedded derivative
Significant unobservable inputs used in the fixed indexed annuities embedded derivative of the interest sensitive contract liabilities valuation include:
1.Nonperformance risk – For contracts Athene issues, they use the credit spread, relative to the U.S. Treasury curve based on Athene’s public credit rating as of the valuation date. This represents Athene’s credit risk for use in the estimate of the fair value of embedded derivatives.
2.Option budget – Athene assumes future hedge costs in the derivative’s fair value estimate. The level of option budgets determines the future costs of the options and impacts future policyholder account value growth.
3.Policyholder behavior – Athene regularly reviews the lapse and withdrawal assumptions (surrender rate). These are based on initial pricing assumptions updated for actual experience. Actual experience may be limited for recently issued products.
Valuation of Underlying Investments
Asset Management
As previously noted, the underlying entities that Apollo manages and invests in are primarily investment companies that account for their investments at estimated fair value.
On a quarterly basis, valuation committees consisting of members from senior management review and approve the valuation results related to the investments of the funds Apollo manages. For certain publicly traded vehicles managed by Apollo, a review is performed by an independent board of directors. Apollo also retains external valuation firms to provide third-party valuation consulting services to Apollo, which consist of certain limited procedures that management identifies and requests them to perform. The limited procedures provided by the external valuation firms assist management with validating their valuation results or determining fair value. Apollo performs various back-testing procedures to validate their valuation approaches, including comparisons between expected and observed outcomes, forecast evaluations and variance analyses. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.
Yield Investments
Yield investments are generally valued based on third party vendor prices and/or quoted market prices and valuation models. Valuations using quoted market prices are based on the average of the “bid” and the “ask” quotes provided by multiple brokers wherever possible without any adjustments. Apollo will designate certain brokers to use to value specific securities. In determining the designated brokers, Apollo considers the following: (i) brokers with which Apollo has previously transacted, (ii) the underwriter of the security and (iii) active brokers indicating executable quotes. In addition, when valuing a security based on broker quotes wherever possible Apollo tests the standard deviation amongst the quotes received and the variance between the concluded fair value and the value provided by a pricing service. When broker quotes are not available Apollo considers the use of pricing service quotes or other sources to mark a position. When relying on a pricing service as a primary source, Apollo (i) analyzes how the price has moved over the measurement period, (ii) reviews the number of brokers included in the pricing service’s population, if available, and (iii) validates the valuation levels with Apollo’s pricing team and traders.
Debt securities that are not publicly traded or whose market prices are not readily available are valued at fair value utilizing a model based approach to determine fair value. Valuation approaches used to estimate the fair value of illiquid credit investments also may include the income approach, as described below. The valuation approaches used consider, as applicable, market risks, credit risks, counterparty risks and foreign currency risks.
Equity and Hybrid Investments
The majority of illiquid equity and hybrid investments are valued using the market approach and/or the income approach, as described below.
66
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Market Approach
The market approach is driven by current market conditions, including actual trading levels of similar companies and, to the extent available, actual transaction data of similar companies. Judgment is required by management when assessing which companies are similar to the subject company being valued. Consideration may also be given to any of the following factors: (1) the subject company’s historical and projected financial data; (2) valuations given to comparable companies; (3) the size and scope of the subject company’s operations; (4) the subject company’s individual strengths and weaknesses; (5) expectations relating to the market’s receptivity to an offering of the subject company’s securities; (6) applicable restrictions on transfer; (7) industry and market information; (8) general economic and market conditions; and (9) other factors deemed relevant. Market approach valuation models typically employ a multiple that is based on one or more of the factors described above.
Enterprise value as a multiple of EBITDA is common and relevant for most companies and industries, however, other industry specific multiples are employed where available and appropriate. Sources for gaining additional knowledge related to comparable companies include public filings, annual reports, analyst research reports, and press releases. Once a comparable company set is determined, Apollo reviews certain aspects of the subject company’s performance and determines how its performance compares to the group and to certain individuals in the group. Apollo compares certain measurements such as EBITDA margins, revenue growth over certain time periods, leverage ratios and growth opportunities. In addition, Apollo compares the entry multiple and its relation to the comparable set at the time of acquisition to understand its relation to the comparable set on each measurement date.
Income Approach
The income approach provides an indication of fair value based on the present value of cash flows that a business or security is expected to generate in the future. The most widely used methodology for the income approach is a discounted cash flow method. Inherent in the discounted cash flow method are significant assumptions related to the subject company’s expected results, the determination of a terminal value and a calculated discount rate, which is normally based on the subject company’s weighted average cost of capital (“WACC”). The WACC represents the required rate of return on total capitalization, which is comprised of a required rate of return on equity, plus the current tax-effected rate of return on debt, weighted by the relative percentages of equity and debt that are typical in the industry. The most critical step in determining the appropriate WACC for each subject company is to select companies that are comparable in nature to the subject company and the credit quality of the subject company. Sources for gaining additional knowledge about the comparable companies include public filings, annual reports, analyst research reports, and press releases. The general formula then used for calculating the WACC considers the after-tax rate of return on debt capital and the rate of return on common equity capital, which further considers the risk-free rate of return, market beta, market risk premium and small stock premium, if applicable. The variables used in the WACC formula are inferred from the comparable market data obtained. The Company evaluates the comparable companies selected and concludes on WACC inputs based on the most comparable company or analyzes the range of data for the investment.
The value of liquid investments, where the primary market is an exchange (whether foreign or domestic), is determined using period end market prices. Such prices are generally based on the close price on the date of determination.
Certain of the funds Apollo manages may also enter into foreign currency exchange contracts, total return swap contracts, credit default swap contracts, and other derivative contracts, which may include options, caps, collars and floors. Foreign currency exchange contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. If securities are held at the end of the period, the changes in value are recorded in income as unrealized. Realized gains or losses are recognized when contracts are settled. Total return swap and credit default swap contracts are recorded at fair value as an asset or liability with changes in fair value recorded as unrealized appreciation or depreciation. Realized gains or losses are recognized at the termination of the contract based on the difference between the close-out price of the total return or credit default swap contract and the original contract price. Forward contracts are valued based on market rates obtained from counterparties or prices obtained from recognized financial data service providers.
67
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Retirement Services
NAV
Investment funds are typically measured using NAV as a practical expedient in determining fair value and are not classified in the fair value hierarchy. The carrying value reflects a pro rata ownership percentage as indicated by NAV in the investment fund financial statements, which may be adjusted if it is determined NAV is not calculated consistent with investment company fair value principles. The underlying investments of the investment funds may have significant unobservable inputs, which may include but are not limited to, comparable multiples and weighted average cost of capital rates applied in valuation models or a discounted cash flow model.
AFS and trading securities
The fair value for most marketable securities without an active market are obtained from several commercial pricing services. These are classified as Level 2 assets. The pricing services incorporate a variety of market observable information in their valuation techniques, including benchmark yields, trading activity, credit quality, issuer spreads, bids, offers and other reference data. This category typically includes U.S. and non-U.S. corporate bonds, U.S. agency and government guaranteed securities, CLO, ABS, CMBS and RMBS.
Athene also has fixed maturity securities priced based on indicative broker quotes or by employing market accepted valuation models. For certain fixed maturity securities, the valuation model uses significant unobservable inputs and are included in Level 3 in fair value hierarchy. Significant unobservable inputs used include discount rates, issue specific credit adjustments, material non-public financial information, estimation of future earnings and cash flows, default rate assumptions, liquidity assumptions and indicative quotes from market makers. These inputs are usually considered unobservable, as not all market participants have access to this data.
Privately placed fixed maturity securities are valued based on the credit quality and duration of comparable marketable securities, which may be securities of another issuer with similar characteristics. In some instances, a matrix-based pricing model is used. These models consider the current level of risk-free interest rates, corporate spreads, credit quality of the issuer and cash flow characteristics of the security. Additional factors such as net worth of the borrower, value of collateral, capital structure of the borrower, presence of guarantees and Athene’s evaluation of the borrower’s ability to compete in its relevant market are also considered. Privately placed fixed maturity securities are classified as Level 2 or 3.
Equity securities
Fair values of publicly traded equity securities are based on quoted market prices and classified as Level 1. Other equity securities, typically private equities or equity securities not traded on an exchange, are valued based on other sources, such as commercial pricing services or brokers, and are classified as Level 2 or 3.
Mortgage loans
Athene estimates fair value monthly using discounted cash flow analysis and rates being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. The discounted cash flow model uses unobservable inputs, including estimates of discount rates and loan prepayments. Mortgage loans are classified as Level 3.
Investment funds
Certain investment funds for which Athene has elected the fair value option are included in Level 3 and are priced based on market accepted valuation models. The valuation models use significant unobservable inputs, which include material non-public financial information, estimation of future distributable earnings and demographic assumptions. These inputs are usually considered unobservable, as not all market participants have access to this data.
68
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Funds withheld at interest embedded derivative
Athene estimates the fair value of the embedded derivative based on the change in the fair value of the assets supporting the funds withheld payable under modco and funds withheld reinsurance agreements. As a result, the fair value of the embedded derivative is classified as Level 2 or 3 based on the valuation methods used for the assets held supporting the reinsurance agreements.
Derivatives
Derivative contracts can be exchange traded or over the counter. Exchange-traded derivatives typically fall within Level 1 of the fair value hierarchy depending on trading activity. Over-the-counter derivatives are valued using valuation models or an income approach using third-party broker valuations. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, prepayment rates and correlation of the inputs. Athene considers and incorporates counterparty credit risk in the valuation process through counterparty credit rating requirements and monitoring of overall exposure. Athene also evaluates and includes its own nonperformance risk in valuing derivatives. The majority of Athene’s derivatives trade in liquid markets; therefore, it can verify model inputs and model selection does not involve significant management judgment. These are typically classified within Level 2 of the fair value hierarchy.
Interest sensitive contract liabilities embedded derivative
Embedded derivatives related to interest sensitive contract liabilities with fixed indexed annuity products are classified as Level 3. The valuations include significant unobservable inputs associated with economic assumptions and actuarial assumptions for policyholder behavior.
AmerUs Closed Block
Athene elected the fair value option for the future policy benefits liability in the AmerUs Closed Block. The valuation technique is to set the fair value of policyholder liabilities equal to the fair value of assets. There is an additional component which captures the fair value of the open block’s obligations to the closed block business. This component is the present value of the projected release of required capital and future earnings before income taxes on required capital supporting the AmerUs Closed Block, discounted at a rate which represents a market participant’s required rate of return, less the initial required capital. Unobservable inputs include estimates for these items. The AmerUs Closed Block policyholder liabilities and any corresponding reinsurance recoverable are classified as Level 3.
ILICO Closed Block
Athene elected the fair value option for the ILICO Closed Block. The valuation technique is to set the fair value of policyholder liabilities equal to the fair value of assets. There is an additional component which captures the fair value of the open block’s obligations to the closed block business. This component uses the present value of future cash flows which include commissions, administrative expenses, reinsurance premiums and benefits, and an explicit cost of capital. The discount rate includes a margin to reflect the business and nonperformance risk. Unobservable inputs include estimates for these items. The ILICO Closed Block policyholder liabilities and corresponding reinsurance recoverable are classified as Level 3.
Universal life liabilities and other life benefits
69
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
8. Deferred Acquisition Costs, Deferred Sales Inducements and Value of Business Acquired
The following represents a rollforward of DAC, DSI and VOBA:
| (In millions) | DAC | DSI | VOBA | Total | |||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | |||||||||||||||||||
| Additions | |||||||||||||||||||||||
| Amortization | ( |
( |
|||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | |||||||||||||||||||
The expected amortization of VOBA for the next five years is as follows:
| (In millions) | Expected Amortization | ||||
20221
|
$ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
1 Expected amortization for the remainder of 2022.
| |||||
9. Goodwill
The carrying value of goodwill was $4.3 billion and $117 million as of March 31, 2022 and December 31, 2021, respectively.
On January 1, 2022, the Company completed the previously announced merger transactions with Athene. In connection with the completion of the Mergers, the Company recognized goodwill of $4.2 billion as of the Merger Date. See note 3 for further disclosure regarding the goodwill recorded as a result of the Mergers.
10. Profit Sharing Payable
Profit sharing payable was $1.6 billion and $1.4 billion as of March 31, 2022 and December 31, 2021, respectively. The below is a roll-forward of the profit-sharing payable balance:
| (In millions) | Total | ||||
Profit sharing payable, January 1, 2022 |
|||||
| Profit sharing expense | |||||
| Payments/other | ( |
||||
Profit sharing payable, March 31, 2022 |
|||||
Profit sharing expense includes (i) changes in amounts due to current and former employees entitled to a share of performance revenues in Apollo’s funds and (ii) changes to the fair value of the contingent consideration obligations recognized in connection with certain of the Company’s acquisitions. Profit sharing expense excludes the potential return of profit-sharing distributions that would be due if certain funds were liquidated, which is recorded in due from related parties in the condensed consolidated statements of financial condition.
70
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
11. Income Taxes
The Company’s income tax (provision) benefit totaled $608 million and $(203 ) million for the three months ended March 31, 2022 and 2021, respectively. The Company’s effective income tax rate was 28.4 % and 11.8 % for the three months ended March 31, 2022 and 2021, respectively.
Under U.S. GAAP, a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company recorded $15.7 million of unrecognized tax benefits as of March 31, 2022 for uncertain tax positions. Approximately all of the unrecognized tax benefits, if recognized, would affect the effective tax rate. The Company does not anticipate a material change to its unrecognized tax benefits over the next twelve months.
The primary jurisdictions in which the Company operates and incurs income taxes are the United States and the United Kingdom. There are no unremitted earnings with respect to the United Kingdom and other foreign entities.
In the normal course of business, the Company is subject to examination by federal, state, local and foreign tax authorities. As of March 31, 2022, the Company’s U.S. federal, state, local and foreign income tax returns for the years 2018 through 2020 are open under the general statute of limitations provisions and therefore subject to examination. Currently, the Internal Revenue Service is examining the tax returns of the Company and certain subsidiaries for the 2013, 2015, 2017, 2019, and 2020 tax years. The State and City of New York are examining certain subsidiaries’ tax returns for tax years 2011 to 2018. The United Kingdom tax authorities are currently examining certain subsidiaries’ tax returns for tax year 2017. There are other examinations ongoing in other foreign jurisdictions, which the Company operates. No provisions with respect to these examinations have been recorded, other than the unrecognized tax benefits discussed above.
The Company has historically recorded deferred tax assets generated by the step-up in the tax basis of assets, including intangibles resulting from exchanges of AOG Units for shares of common stock by the Former Managing Partners and Contributing Partners. A related liability has also historically been recorded in “Due to Related Parties” in the condensed consolidated statements of financial condition for the expected payments under the tax receivable agreement entered into by and among the Company, the Former Managing Partners, the Contributing Partners, and other parties thereto (as amended, the “tax receivable agreement”) (see note 16). The benefit the Company has historically obtained from the difference in the tax asset recognized and the related liability resulted in an increase to additional paid in capital. The amortization period for the portion of the increase in tax basis related to intangibles is 15 years. The realization of the remaining portion of the increase in tax basis relates to the disposition of the underlying assets to which the step-up is attributed. The associated deferred tax assets reverse at the time of the corresponding asset disposition.
Subsequent to the Mergers, the Former Managing Partners and Contributing Partners no longer own AOG Units. Therefore, there were no exchanges subject to the tax receivable agreement during the three months ended March 31, 2022. The table below presents the impact to the deferred tax asset, tax receivable agreement liability and additional paid in capital related to the exchange of AOG Units for Class A shares for the three months ended March 31, 2021.
| Exchange of AOG Units for Common Stock | Increase in Deferred Tax Asset | Increase in Tax Receivable Agreement Liability | Increase in Additional Paid in Capital | |||||||||||||||||
| For the three Months Ended March 31, 2021 (in millions) | ||||||||||||||||||||
71
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
12. Debt
Company debt consisted of the following:
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | Maturity Date | Outstanding Balance | Fair Value |
Interest Rate(1)
|
Outstanding Balance | Fair Value |
Interest Rate1
|
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| Asset Management | |||||||||||||||||||||||||||||||||||||||||||||||
2024 Senior Notes2
|
May 30, 2024 | $ | $ | 4 |
% | $ | $ | 4 |
% | ||||||||||||||||||||||||||||||||||||||
2026 Senior Notes2
|
May 27, 2026 | 4 |
4 |
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2029 Senior Notes2
|
February 15, 2029 | 4 |
4 |
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2030 Senior Notes2
|
June 5, 2030 | 4 |
4 |
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2039 Senior Secured Notes2,6
|
5 |
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2048 Senior Notes2
|
March 15, 2048 | 4 |
4 |
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2050 Subordinated Notes2
|
January 14, 2050 | 4 |
4 |
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| Secured Borrowing II | April 15, 2032 | 3 |
3 |
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| 2016 AMI Term Facility I | January 15, 2025 | 3 |
3 |
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| 2016 AMI Term Facility II | July 23, 2023 | 3 |
3 |
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| Retirement Services | |||||||||||||||||||||||||||||||||||||||||||||||
| 2028 Notes | January 12, 2028 | % | |||||||||||||||||||||||||||||||||||||||||||||
| 2030 Notes | April 3, 2030 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2031 Notes | January 15, 2031 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2051 Notes | May 25, 2051 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2052 Notes | May 15, 2052 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total Debt | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
1 Interest rate is calculated as weighted average annualized.
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2 Includes amortization of note discount, as applicable, totaling $ | |||||||||||||||||||||||||||||||||||||||||||||||
3 Fair value is based on broker quotes. These notes are valued using Level 3 inputs based on the number and quality of broker quotes obtained, the standard deviations of the observed broker quotes and the percentage deviation from external pricing services. For instances where broker quotes are not available, a discounted cash flow method is used.
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4 Fair value is based on broker quotes. These notes are valued using Level 2 inputs based on the number and quality of broker quotes obtained, the standard deviations of the observed broker quotes and the percentage deviation from external pricing services.
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5 Fair value is based on a discounted cash flow method. These notes are valued using Level 3 inputs.
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6 These notes were transferred to a VIE consolidated by Athene during the three months ended March 31, 2022.
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Asset Management - Notes Issued
The indentures governing the 2024 Senior Notes, the 2026 Senior Notes, the 2029 Senior Notes, the 2030 Senior Notes, the 2048 Senior Notes and the 2050 Subordinated Notes include covenants that restrict the ability of Apollo Management Holdings, L.P., an Apollo subsidiary and issuer of the notes (“AMH”) and, as applicable, the guarantors of the notes under the indentures, to incur indebtedness secured by liens on voting stock or profit participating equity interests of their respective subsidiaries, or merge, consolidate or sell, transfer or lease assets. The indentures also provide for customary events of default.
Retirement Services - Notes Issued
Athene’s senior unsecured notes are callable by AHL at any time. If called prior to three months before the scheduled maturity date, the price is equal to the greater of (1) 100 % of the principal and any accrued and unpaid interest and (2) an amount equal to the sum of the present values of remaining scheduled payments, discounted from the scheduled payment date to the redemption date treasury rate plus a spread as defined in the applicable prospectus supplement and any accrued and unpaid interest.
72
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Credit Facilities
The following table represents the Company’s credit facilities:
| Instrument/Facility | Borrowing Date | Maturity Date | Lender | Key terms | ||||||||||
Asset Management - AMH Credit Facility
|
November 23, 2020 | November 23, 2025 | Citibank | The commitment fee on the $ |
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Retirement Services - AHL Credit Facility
|
N/A | December 3, 2024 | Citibank | The borrowing capacity under the Credit Facility is $ |
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Asset Management - Credit Facility
Borrowings under the AMH credit facility may be used for working capital and general corporate purposes, including, permitted acquisitions. AMH, the borrower under the facility, may incur incremental facilities in an aggregate amount not to exceed $250 million plus additional amounts so long as the borrower is in compliance with a net leverage ratio not to exceed 4.00 to 1.00. As of March 31, 2022, there were no amounts outstanding under the AMH credit facility and the Company was in compliance with all covenants under the facility.
Retirement Services - Credit Facility
In connection with the AHL credit facility, AHL and Athene USA Corporation (“AUSA”) guaranteed all of the obligations of AHL, Athene Life Re (“ALRe”), Athene Annuity Re Ltd. (“AARe”) and AUSA under this facility, and ALRe and AARe guaranteed certain of the obligations of AHL, ALRe, AARe and AUSA under this facility. The AHL credit facility contains various standard covenants with which the company must comply, including the following:
1. Consolidated debt to capitalization ratio of not greater than 35 %;
2. Minimum consolidated net worth of no less than $7.3 billion; and
3. Restrictions on the company’s ability to incur debt and liens, in each case with certain exceptions.
As of March 31, 2022, there were no amounts outstanding under the AHL credit facility and Athene was in compliance with all covenants under the facility.
Interest accrues on outstanding borrowings at either the Eurodollar Rate (as defined in the AHL credit facility) plus a margin or a base rate plus a margin, with the applicable margin varying based on Athene’s Debt Rating (as defined in the AHL credit facility). The AHL credit facility has a commitment fee that is determined by reference to Athene’s Debt Rating, and ranges from 0.10 % to 0.30 % of the undrawn commitment. As of March 31, 2022, the commitment fee was 0.15 % of the undrawn commitment.
Interest Expense
The following table presents the interest expense incurred related to the Company’s debt:
| Three months ended March 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Asset Management | $ | $ | |||||||||
Retirement Services1
|
|||||||||||
| Total Interest Expense | $ | $ | |||||||||
Note: Debt issuance costs incurred are amortized into interest expense over the term of the debt arrangement, as applicable. | |||||||||||
1 Interest expense for Retirement Services is included in policy and other operating expenses on the condensed consolidated statements of operations.
| |||||||||||
13. Equity-Based Compensation
Under the Equity Plan, the Company grants equity-based awards to employees. The fair value of all grants is based on the grant date fair value, which considers the public share price of AGM’s common stock subject to certain discounts, as applicable. Equity-based awards granted to employees and non-employees as compensation are measured based on the grant date fair value of the award. Equity-based awards that do not require future service (i.e., vested awards) are expensed immediately.
73
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
AGM grants both service and performance-based awards. The estimated total grant date fair value for service-based awards is charged to compensation expense on a straight-line basis over the vesting period, which is generally to six years from the date of grant. Certain service-based awards are tied to profit sharing arrangements in which a portion of the performance fees distributed to the general partner are required to be used by employees to purchase restricted shares of common stock or RSUs, which are granted under the Company’s Equity Plan. Performance based awards vest subject to continued employment and the Company’s achievement of specified performance goals. In accordance with U.S. GAAP, equity-based compensation expense for performance grants are typically recognized on an accelerated recognition method over the requisite service period to the extent the performance revenue metrics are met or deemed probable.
For the three months ended March 31, 2022 and March 31, 2021, AGM recorded equity-based compensation expense of $168 million and $56 million, respectively. The equity-based compensation expense of $168 million for the three months ended March 31, 2022 primarily included equity-based compensation expense of $74 million for performance-based RSU grants, $67 million for service-based RSU grants and $19 million for restricted stock from profit sharing arrangements. The equity-based compensation expense of $56 million for the three months ended March 31, 2021 primarily included equity-based compensation expense of $26 million for performance-based RSU grants, $19 million for service-based RSU grants and $4 million for restricted stock from profit sharing arrangements. As of March 31, 2022, there was $913 million of estimated unrecognized compensation expense related to unvested awards. This cost is expected to be recognized over a weighted-average period of 3.2 years.
Service-Based Awards
During the three months ended March 31, 2022 and March 31, 2021, the Company awarded service-based grants of 4.3 million RSUs and 2.0 million RSUs with a grant date fair value of $266 million and $102 million, respectively. During the same periods, the Company recorded equity-based compensation expense on service-based awards of $67 million and $19 million, respectively.
Performance-Based Awards
During the three months ended March 31, 2022 and March 31, 2021, the Company awarded performance-based grants of 2.1 million and 1.1 million RSUs to certain employees with a grant date fair value of $126 million and $49 million, respectively, which primarily vest subject to continued employment and the Company’s receipt of performance revenues, within prescribed periods, sufficient to cover the associated equity-based compensation. During the same periods, the Company recorded equity-based compensation expense on performance-based awards of $74 million and $26 million, respectively.
In December 2021, the Company awarded one-time grants to the Co-Presidents of AAM of 6 million RSUs which vest on a cliff basis subject to continued employment over five years , with 2 million of those RSUs also subject to the Company’s achievement of certain fee related earnings and spread related earnings per share metrics. During the three months ended March 31, 2022, the Company recorded equity-based compensation expense of $14 million for service-based awards and $6 million for performance-based awards related to these one-time grants.
The following table summarizes all RSU activity for the current period:
| Unvested | Weighted Average Grant Date Fair Value | Vested | Total Number of RSUs Outstanding | ||||||||||||||||||||
| Balance at January 1, 2022 | |||||||||||||||||||||||
| RSUs assumed in the Mergers | $ |
||||||||||||||||||||||
| Granted | $ |
||||||||||||||||||||||
| Forfeited | ( |
$ |
( |
( |
|||||||||||||||||||
| Vested | ( |
$ |
|||||||||||||||||||||
| Issued | — | — | ( |
( |
|||||||||||||||||||
| Balance at March 31, 2022 | $ |
||||||||||||||||||||||
74
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
14. Equity
Common Stock
Holders of common stock are entitled to participate in dividends from the Company on a pro rata basis.
During the three months ended March 31, 2022 and 2021, the Company issued shares of common stock in settlement of vested RSUs. The Company has generally allowed holders of vested RSUs and exercised share options to settle their tax liabilities by reducing the number of shares of common stock issued to them, which the Company refers to as “net share settlement.” Additionally, the Company has generally allowed holders of share options to settle their exercise price by reducing the number of shares of common stock issued to them at the time of exercise by an amount sufficient to cover the exercise price. The net share settlement results in a liability for the Company and a corresponding accumulated deficit adjustment.
On January 3, 2022, the Company announced a share repurchase program, pursuant to which, the Company is authorized to repurchase (i) up to an aggregate of $1.5 billion of shares of its common stock in order to opportunistically reduce its share count and (ii) up to an aggregate of $1.0 billion of shares of its common stock in order to offset the dilutive impact of share issuances under the its equity incentive plans. Shares of common stock may be repurchased from time to time in open market transactions, in privately negotiated transactions, pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act, or otherwise, as well as through reductions of shares that otherwise would have been issued to participants under the Company’s Equity Plan in order to satisfy associated tax obligations. The repurchase program does not obligate the Company to make any repurchases at any specific time. The program is effective until the aggregate repurchase amount that has been approved by the AGM board of directors has been expended and may be suspended, extended, modified or discontinued at any time.
The table below outlines the share activity for the three months ended March 31, 2022 and 2021.
| Three months ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
Shares of common stock issued in settlement of vested RSUs and options exercised1
|
|||||||||||
Reduction of shares of common stock issued2
|
( |
( |
|||||||||
Shares of common stock purchased related to share issuances and forfeitures3
|
( |
||||||||||
| Issuance of shares of common stock for equity-based awards | |||||||||||
1 The gross value of shares issued was $ |
|||||||||||
2 Cash paid for tax liabilities associated with net share settlement was $ |
|||||||||||
3 Certain Apollo employees receive a portion of the profit sharing proceeds of certain funds in the form of (a) restricted shares of common stock that they are required to purchase with such proceeds or (b) RSUs, in each case which equity-based awards generally vest over |
|||||||||||
During the three months ended March 31, 2022 and 2021, 2,986,676 and 0 shares of common stock were repurchased in open market transactions as part of the publicly announced share repurchase program discussed above, respectively, and such shares were subsequently canceled by the Company. The Company paid $187 million and $0 million for these open market share repurchases during the three months ended March 31, 2022 and 2021, respectively.
Dividends and Distributions
75
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| Dividend Declaration Date | Dividend per Share of Common Stock | Payment Date | Dividend to Common Stockholders | Distribution to Non-Controlling Interest Holders in the Apollo Operating Group | Total Distributions | Distribution Equivalents on Participating Securities | ||||||||||||||||||||||||||||||||
| February 3, 2021 | $ | February 26, 2021 | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| N/A | — | April 14, 2021 | ||||||||||||||||||||||||||||||||||||
| May 4, 2021 | May 28, 2021 | |||||||||||||||||||||||||||||||||||||
| N/A | — | June 15, 2021 | ||||||||||||||||||||||||||||||||||||
| August 4, 2021 | August 31, 2021 | |||||||||||||||||||||||||||||||||||||
| N/A | — | September 15, 2021 | ||||||||||||||||||||||||||||||||||||
| November 2, 2021 | November 30, 2021 | |||||||||||||||||||||||||||||||||||||
| N/A | — | December 15, 2021 | ||||||||||||||||||||||||||||||||||||
| Year ended December 31, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| February 11, 2022 | $ | February 28, 2022 | ||||||||||||||||||||||||||||||||||||
| Three months ended March 31, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss)
The following provides the details and changes in AOCI:
| (In millions) | Unrealized investment gains (losses) on AFS securities without a credit allowance | Unrealized investment gains (losses) on AFS securities with a credit allowance | DAC, DSI and future policy benefits adjustments on AFS securities | Unrealized gains (losses) on hedging instruments | Foreign currency translation and other adjustments | Accumulated other comprehensive income (loss) | |||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | ( |
$ | $ | $ | ( |
$ | ( |
$ | ( |
|||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( |
( |
( |
( |
( |
||||||||||||||||||||||||||||||
Less: Reclassification adjustments for gains (losses) realized1
|
( |
( |
( |
||||||||||||||||||||||||||||||||
| Less: Income tax expense (benefit) | ( |
( |
( |
( |
|||||||||||||||||||||||||||||||
| Less: Other comprehensive loss attributable to non-controlling interests | ( |
( |
( |
( |
( |
||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | ( |
$ | ( |
$ | $ | ( |
$ | $ | ( |
|||||||||||||||||||||||||
1 Recognized in investment related gains (losses) on the condensed consolidated statements of operations.
| |||||||||||||||||||||||||||||||||||
76
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
15. Earnings per Share
| Basic and Diluted | |||||||||||
| Three months ended March 31, | |||||||||||
| (In millions, except share amounts) | 2022 | 2021 | |||||||||
| Numerator: | |||||||||||
| Net Income (Loss) attributable to common stockholders | $ | ( |
$ | ||||||||
Dividends declared on common stock 1
|
( |
( |
|||||||||
Dividends on participating securities 2
|
( |
( |
|||||||||
Earnings allocable to participating securities3
|
( |
||||||||||
| Undistributed income (loss) attributable to common stockholders: Basic | ( |
||||||||||
| Denominator: | |||||||||||
| Weighted average number of shares of common stock outstanding: Basic and Diluted | |||||||||||
Net Income (loss) per share of common stock: Basic and Diluted4
|
|||||||||||
| Distributed Income | $ | $ | |||||||||
| Undistributed Income (loss) | ( |
||||||||||
| Net Income (loss) per share of common stock: Basic and Diluted | $ | ( |
$ | ||||||||
1 See note 14 for information regarding quarterly dividends.
| |||||||||||
2 Participating securities consist of vested and unvested RSUs that have rights to dividends and unvested restricted shares.
| |||||||||||
3 No allocation of undistributed losses was made to the participating securities as the holders do not have a contractual obligation to share in the losses of the Company with common stockholders.
|
|||||||||||
4 For the three months ended March 31, 2022 and 2021, all of the classes of securities were determined to be anti-dilutive.
|
|||||||||||
The Company has granted RSUs that provide the right to receive, subject to vesting during continued employment, shares of common stock pursuant to the Equity Plan.
Any dividend equivalent paid to an employee on RSUs will not be returned to the Company upon forfeiture of the award by the employee. Vested and unvested RSUs that are entitled to non-forfeitable dividend equivalents qualify as participating securities and are included in the Company’s basic and diluted earnings per share computations using the two-class method. The holder of an RSU participating security would have a contractual obligation to share in the losses of the entity if the holder is obligated to fund the losses of the issuing entity or if the contractual principal or mandatory redemption amount of the participating security is reduced as a result of losses incurred by the issuing entity. The RSU participating securities do not have a mandatory redemption amount and the holders of the participating securities are not obligated to fund losses; therefore, neither the vested RSUs nor the unvested RSUs are subject to any contractual obligation to share in losses of the Company.
Prior to December 31, 2021, AAM had one Class B share outstanding, which was held by BRH Holdings GP, Ltd. (“BRH”). The voting power of the share of Class B share was reduced on a one vote per one AOG Unit basis in the event of an exchange of AOG Units for Class A shares, subject to the terms of AAM’s certificate of incorporation. The Class B share had no net income (loss) per share as it did not participate in Apollo’s earnings (losses) or dividends. The Class B share had no dividend rights and only a de minimis liquidation right. The Class B share represented 46.6 % of the total voting power of the Class A shares and Class B share with respect to the limited matters upon which they were entitled to vote together as a single class pursuant to AAM’s governing documents as of December 31, 2021. On December 31, 2021, the Class B share was exchanged for 10 Class A shares, which were subsequently exchanged into 10 shares of AGM common stock in the Mergers on January 1, 2022.
The following table summarizes the anti-dilutive securities:
| Three months ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
Weighted average vested RSUs |
|||||||||||
| Weighted average unvested RSUs | |||||||||||
| Weighted average unexercised options | |||||||||||
| Weighted average AOG Units outstanding | |||||||||||
| Weighted average unvested restricted shares | |||||||||||
77
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
16. Related Parties
Asset Management
Due from/ to related parties
Due from/ to related parties includes:
•unpaid management fees, transaction and advisory fees and reimbursable expenses from the funds Apollo manages and their portfolio companies;
•reimbursable payments for certain operating costs incurred by these funds as well as their related parties; and
•other related party amounts arising from transactions including loans to employees and periodic sales of ownership interests in funds managed by Apollo.
Due from related parties and Due to related parties consisted of the following as of March 31, 2022 and December 31, 2021 :
| (In millions) | March 31, 2022 | December 31, 2021 | |||||||||
| Due from Related Parties: | |||||||||||
Due from funds1
|
$ | $ | |||||||||
| Due from portfolio companies | |||||||||||
| Due from employees and former employees | |||||||||||
| Total Due from Related Parties | $ | $ | |||||||||
| Due to Related Parties | |||||||||||
Due to Former Managing Partners and Contributing Partners2
|
$ | $ | |||||||||
| Due to funds | |||||||||||
| Total Due to Related Parties | $ | $ | |||||||||
1 Includes $ | |||||||||||
2 Includes $ | |||||||||||
Tax Receivable Agreement
Prior to the consummation of the Mergers, each of the Former Managing Partners and Contributing Partners had the right to exchange vested AOG Units for Class A shares, subject to certain restrictions. All Apollo Operating Group entities have made, or will make, an election under the U.S. Internal Revenue Code, which will result in an adjustment to the tax basis of the assets owned by the Apollo Operating Group entities at the time an exchange was made. The election results in an increase to the tax basis of underlying assets which will reduce the amount of tax that AGM and its subsidiaries will otherwise be required to pay in the future.
The tax receivable agreement provides for payment to the Former Managing Partners and Contributing Partners of 85 % of the amount of cash tax savings, if any, in U.S. federal, state, local and foreign income taxes the Company realizes as a result of the increase to the tax basis of underlying assets resulting from transactions and other exchanges of AOG Units for Class A shares that occurred in prior years. AGM and its subsidiaries retain the benefit from the remaining 15 % of actual cash tax savings. In May 2022, Apollo waived its early termination right, which had provided it the right to early terminate the tax receivable agreement at any time by payment of an early termination payment to all holders. If the Company does not make the required annual payment on a timely basis as outlined in the tax receivable agreement, interest is accrued on the balance until the payment date.
Following the closing of the Mergers, the Former Managing Partners and Contributing Partners no longer own AOG Units. Therefore, there were no exchanges subject to the tax receivable agreement during the three months ended March 31, 2022.
As a result of the exchanges of AOG Units for Class A shares during the three months ended March 31, 2021, a $26 million liability was recorded to estimate the amount of the future expected payments to be made by AGM and its subsidiaries to the Former Managing Partners and Contributing Partners pursuant to the tax receivable agreement.
78
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
AOG Unit Payment
On December 31, 2021, holders of AOG Units (other than Athene and the Company) sold and transferred a portion of such AOG Units to a wholly-owned consolidated subsidiary of the Company, in exchange for an amount equal to $3.66 multiplied by the total number of AOG Units held by such holders immediately prior to such transaction. The remainder of the AOG Units held by such holders were exchanged for shares of AGM common stock concurrently with the consummation of the Mergers on January 1, 2022.
As of March 31, 2022, the outstanding payable amount due to Former Managing Partners and Contributing Partners was $482 million, which is payable in equal installments through December 31, 2024.
Due from Employees and Former Employees
As of March 31, 2022 and December 31, 2021, due from related parties includes various amounts due to Apollo including employee loans and return of profit-sharing distributions. As of March 31, 2022 and December 31, 2021, the balance includes interest-bearing employee loans receivable of $23 million and $18 million, respectively. The outstanding principal amount of the loans as well as all accrued and unpaid interest is required to be repaid at the earlier of the eighth anniversary of the date of the relevant loan or at the date of the relevant employee’s resignation.
The receivable from certain employees and former employees includes an amount for the potential return of profit-sharing distributions that would be due if certain funds were liquidated of $64 million and $65 million at March 31, 2022 and December 31, 2021, respectively.
Indemnity
Certain of the performance revenues Apollo earns from funds may be subject to repayment by its subsidiaries that are general partners of the funds in the event that certain specified return thresholds are not ultimately achieved. The Former Managing Partners, Contributing Partners and certain other investment professionals have personally guaranteed, subject to certain limitations, the obligations of these subsidiaries in respect of this obligation. Such guarantees are several and not joint and are limited to a particular individual’s distributions. Apollo has agreed to indemnify each of the Former Managing Partners and certain Contributing Partners against all amounts that they pay pursuant to any of these personal guarantees in favor of certain funds that it manages (including costs and expenses related to investigating the basis for or objecting to any claims made in respect of the guarantees) for all interests that the Former Managing Partners and Contributing Partners contributed or sold to the Apollo Operating Group.
Apollo recorded an indemnification liability of $14 million and $13 million as of March 31, 2022 and December 31, 2021, respectively.
Due to Related Parties
Based upon an assumed liquidation of certain of the funds Apollo manages, it has recorded a general partner obligation to return previously distributed performance allocations, which represents amounts due to certain funds. The obligation is recognized based upon an assumed liquidation of a fund’s net assets as of the reporting date. The actual determination and any required payment would not take place until the final disposition of a fund’s investments based on the contractual termination of the fund or as otherwise set forth in the respective governing document of the fund.
Athora
The Company, through ISGI, provides investment advisory services to certain portfolio companies of funds managed by Apollo and Athora, a strategic platform that acquires or reinsures blocks of insurance business in the European life insurance market (collectively, the “Athora Accounts”). The Company had equity commitments outstanding of up to $454 million as of March 31, 2022, subject to certain conditions.
79
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Athora Sub-Advised
Apollo provides sub-advisory services with respect to a portion of the assets in certain portfolio companies of funds managed by Apollo and the Athora Accounts. Apollo broadly refers to “Athora Sub-Advised” assets as those assets in the Athora Accounts which it explicitly sub-advises as well as those assets in the Athora Accounts which are invested directly in funds and investment vehicles Apollo manages.
Apollo earns a base management fee on the aggregate market value of substantially all of the investment accounts of or relating to Athora and also a sub-advisory fee on the Athora Sub-Advised assets, which varies depending on the specific asset class.
Regulated Entities
Apollo Global Securities, LLC (“AGS”) is a registered broker dealer with the SEC and is a member of the Financial Industry Regulatory Authority, subject to the minimum net capital requirements of the SEC. AGS was in compliance with these requirements as of March 31, 2022. From time to time AGS, as well as other Apollo affiliates, provide services to related parties of Apollo, including portfolio companies, whereby the Company or its affiliates earn fees for providing such services.
Griffin Capital Securities, LLC (“GCS”) is a registered broker dealer with the SEC and is a member of the Financial Industry Regulatory Authority, subject to the minimum net capital requirements of the SEC. GCS was in compliance with these requirements at March 31, 2022.
Investment in SPACs
In October 2020, Apollo Strategic Growth Capital (“APSG I”), a SPAC, completed an initial public offering, ultimately raising total gross proceeds of $817 million, including the underwriters’ partial exercise of their over-allotment. In a private placement concurrent offering, APSG I sold warrants to APSG Sponsor, L.P., a subsidiary of Apollo, for gross proceeds of $18 million. APSG Sponsor, L.P. also holds Class B ordinary shares of APSG I. The Company currently consolidates APSG I as a VIE, and thus all warrants and Class B units are eliminated in consolidation.
On February 12, 2021, APSG II, a SPAC, completed an initial public offering, raising total gross proceeds of $690 million, including the underwriters’ exercise in full of their over-allotment option. In a private placement concurrent with the initial public offering, APSG II sold warrants to APSG Sponsor II, L.P., a subsidiary of Apollo, for total gross proceeds of $16 million. APSG Sponsor II, L.P. also holds Class B ordinary shares of APSG II. Apollo currently consolidates APSG II as a VIE, and thus all private placement warrants and Class B ordinary shares are eliminated in consolidation.
On July 13, 2021, Acropolis Infrastructure Acquisition Corp. (“Acropolis”), a SPAC, completed an initial public offering, ultimately raising total gross proceeds of $345 million, including the underwriters’ subsequent exercise in full of their over-allotment option. In a private placement concurrent with the initial public offering, Acropolis sold warrants to Acropolis Infrastructure Acquisition Sponsor, L.P., a subsidiary of Apollo, for total gross proceeds of $9 million. Acropolis Infrastructure Acquisition Sponsor, L.P. also holds Class B common stock of Acropolis. Apollo currently consolidates Acropolis as a VIE, and thus all private placement warrants and Class B common stock are eliminated in consolidation.
As described in note 2, the Company consolidates entities that are VIEs for which the Company has been designated as the primary beneficiary. Through its interests in the respective sponsors, the Company has the power to direct the activities that most significantly impact the economic performance of these SPACs. In addition, the Company’s combined interests in these VIEs are significant. Assets and liabilities of the consolidated SPACs are shown within the respective line items of the condensed consolidated financial statements, as outlined below.
80
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (In millions) | March 31, 2022 | December 31, 2021 | |||||||||
| Assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash and cash equivalents | |||||||||||
| U.S. Treasury securities, at fair value | |||||||||||
| Other assets | |||||||||||
| Total Assets | $ |
|
$ |
|
|||||||
| Liabilities, Redeemable non-controlling interests and Stockholders’ Equity | |||||||||||
| Liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Due to related parties | |||||||||||
| Other liabilities | |||||||||||
| Total Liabilities |
|
|
|||||||||
| Redeemable non-controlling interests: | |||||||||||
| Redeemable non-controlling interests | |||||||||||
| Stockholders’ Equity: | |||||||||||
| Additional paid in capital | ( |
( |
|||||||||
| Retained earnings | |||||||||||
| Total Stockholders’ Equity | ( |
( |
|||||||||
| Total Liabilities, Redeemable non-controlling interests and Stockholders’ Equity | $ |
|
$ |
|
|||||||
| For the Three Months Ended March 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Expenses: | |||||||||||
| General, administrative and other | |||||||||||
| Total Expenses | |||||||||||
| Other Income (Loss): | |||||||||||
| Net gains (losses) from investment activities | ( |
||||||||||
| Interest income | |||||||||||
| Total Other Income (Loss) | ( |
||||||||||
| Net Income Attributable to Apollo Global Management, Inc. | ( |
( |
|||||||||
Retirement Services
Athene Freedom
Athene has a limited partnership investment in Athene Freedom, for which Apollo is the general partner. Athene consolidates Athene Freedom as a VIE. Athene Freedom indirectly invests in both Wheels, Inc. (“Wheels”) and Donlen, LLC (“Donlen”). Additionally, as of March 31, 2022, Athene owns $2.2 billion ABS and corporate debt securities issued by Wheels and Donlen, which are held as investments in related parties on the condensed consolidated statements of financial condition.
Athora
Athene has a cooperation agreement with Athora, pursuant to which, among other things, (1) for a period of 30 days from the receipt of notice of a cession, Athene has the right of first refusal to reinsure (i) up to 50 % of the liabilities ceded from Athora’s reinsurance subsidiaries to Athora Life Re Ltd. and (ii) up to 20 % of the liabilities ceded from a third party to any of Athora’s insurance subsidiaries, subject to a limitation in the aggregate of 20 % of Athora’s liabilities, (2) Athora agreed to cause its insurance subsidiaries to consider the purchase of certain funding agreements and/or other spread instruments issued by Athene’s insurance subsidiaries, subject to a limitation that the fair market value of such funding agreements purchased by any of Athora’s insurance subsidiaries may generally not exceed 3 % of the fair market value of such subsidiary’s total assets, (3) Athene provides Athora with a right of first refusal to pursue acquisition and reinsurance transactions in Europe (other than the UK) and (4) Athora provides Athene and its subsidiaries with a right of first refusal to pursue acquisition and reinsurance transactions in North America and the UK. Notwithstanding the foregoing, pursuant to the cooperation agreement, Athora is
81
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
only required to use its reasonable best efforts to cause its subsidiaries to adhere to the provisions set forth in the cooperation agreement and therefore Athora’s ability to cause its subsidiaries to act pursuant to the cooperation agreement may be limited by, among other things, legal prohibitions or the inability to obtain the approval of the board of directors or other applicable governing body of the applicable subsidiary, which approval is solely at the discretion of such governing body. As of March 31, 2022, Athene had not exercised its right of first refusal to reinsure liabilities ceded to Athora’s insurance or reinsurance subsidiaries.
The following table summarizes Athene’s investments in Athora:
| (In millions) | March 31, 2022 | ||||
| Investment fund | $ | ||||
| Non-redeemable preferred equity securities | |||||
| Total investment in Athora | $ | ||||
Additionally, as of March 31, 2022, Athene had $61 million of funding agreements outstanding to Athora. Athene also has commitments to make additional investments in Athora of $552 million as of March 31, 2022.
Venerable
Athene has coinsurance and modco agreements with Venerable Insurance and Annuity Company (“VIAC”). VIAC is a related party due to Athene’s minority equity investment in its holding company’s parent, VA Capital Company LLC (“VA Capital”), which was $230 million as of March 31, 2022. The minority equity investment in VA Capital is included in investments in related parties on the condensed consolidated statements of financial condition and accounted for as an equity method investment. VA Capital is owned by a consortium of investors, led by affiliates of Apollo, Crestview Partners III Management, LLC and Reverence Capital Partners L.P., and is the parent of Venerable, which is the parent of VIAC. Additionally, Athene has term loans receivable from Venerable due in 2033, which is included in investments in related parties on the condensed consolidated statements of financial condition. The loans are held at the principal balance less allowances and were $255 million as of March 31, 2022. While management viewed the overall transactions with Venerable as favorable to Athene, the stated interest rate of 6.257 % on the term loans to Venerable represented a below-market interest rate, and management considered such rate as part of its evaluation and pricing of the reinsurance transactions.
PK AirFinance
Athene has investments in PK AirFinance (“PK Air”), an aviation lending business with a portfolio of loans (“Aviation Loans”). The Aviation Loans are generally fully secured by aircraft leases and aircraft. Apollo owns the PK Air loan origination platform, including personnel and systems and, pursuant to certain agreements entered into between Athene, Apollo, and certain entities managed by Apollo, the Aviation Loans are securitized by a special purpose vehicle (“SPV”) for which Apollo acts as ABS manager (“ABS-SPV”). The ABS-SPV issues tranches of senior notes and subordinated notes, which are secured by the Aviation Loans. Athene has purchased both senior and subordinated notes of PK Air, which are included in investments in related parties on the condensed consolidated statements of financial condition. During the first quarter of 2022, Athene contributed its investment in the subordinated notes to PK Air Holdings, LP, which is a consolidated VIE investment on the condensed consolidated statements of financial condition. As of March 31, 2022, Athene holds $1.1 billion of PK Air senior notes and has commitments to make additional investments in PK Air of $1.3 billion.
Apollo/Athene Dedicated Investment Program (“ADIP”)
Athene’s subsidiary, Athene Co-Invest Reinsurance Affiliate Holding Ltd. (together with its subsidiaries, “ACRA”) is partially owned by ADIP, a series of funds managed by Apollo. Athene’s subsidiary, ALRe, currently holds 36.55 % of the economic interests in ACRA and all of ACRA’s voting interests, with ADIP holding the remaining 63.45 % of the economic interests. During the three months ended March 31, 2022, Athene received capital contributions of $311 million from ADIP.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
17. Commitments and Contingencies
Investment Commitments
The Company has unfunded capital commitments as of March 31, 2022 and December 31, 2021 of $0.7 billion and $1.0 billion, respectively, related to the funds it manages.
Athene had commitments to make investments, primarily capital contributions to investment funds, inclusive of related party commitments discussed previously, of $16.6 billion as of March 31, 2022. Athene expects most of the current commitments will be invested over the next five years; however, these commitments could become due any time upon counterparty request.
Contingent Obligations
Performance allocations with respect to certain funds are subject to reversal in the event of future losses to the extent of the cumulative revenues recognized in income to date. If all of the existing investments became worthless, the amount of cumulative revenues that have been recognized by Apollo through March 31, 2022 and that could be reversed approximates $4.8 billion. Performance allocations are affected by changes in the fair values of the underlying investments in the funds that Apollo manages. Valuations, on an unrealized basis, can be significantly affected by a variety of external factors including, but not limited to, bond yields and industry trading multiples. Movements in these items can affect valuations quarter to quarter even if the underlying business fundamentals remain stable. Management views the possibility of all of the investments becoming worthless as remote.
Additionally, at the end of the life of certain funds, Apollo may be obligated as general partner, to repay the funds’ performance allocations received in excess of what was ultimately earned. This obligation amount, if any, will depend on final realized values of investments at the end of the life of each fund or as otherwise set forth in the partnership agreement of the fund.
Certain funds may not generate performance allocations as a result of unrealized and realized losses that are recognized in the current and prior reporting periods. In certain cases, performance allocations will not be generated until additional unrealized and realized gains occur. Any appreciation would first cover the deductions for invested capital, unreturned organizational expenses, operating expenses, management fees and priority returns based on the terms of the respective fund agreements.
One of Apollo’s subsidiaries, AGS, provides underwriting commitments in connection with securities offerings of related parties of Apollo, including portfolio companies of the funds Apollo manages, as well as third parties. As of March 31, 2022, there were no open underwriting commitments.
In connection with the acquisition of Stone Tower in 2012, Apollo agreed to pay its former owners a specified percentage of future performance revenues earned from certain of its funds, CLOs, and strategic investment accounts. This obligation liability was determined based on the present value of estimated future performance revenue payments and is recorded in other liabilities. The fair value of the remaining contingent obligation was $110 million and $126 million as of March 31, 2022 and December 31, 2021, respectively.
The contingent consideration obligation is remeasured to fair value at each reporting period until the obligations are satisfied. The changes in the fair value of the contingent consideration obligations is reflected in profit sharing expense in the condensed consolidated statements of operations.
Funding Agreements
Athene is a member of the Federal Home Loan Bank of Des Moines (“FHLB”) and, through its membership, has issued funding agreements to the FHLB in exchange for cash advances. As of March 31, 2022, Athene had $3.2 billion of FHLB funding agreements outstanding. Athene is required to provide collateral in excess of the funding agreement amounts outstanding, considering any discounts to the securities posted and prepayment penalties.
Athene has a funding agreement backed notes (“FABN”) program, which allows Athene Global Funding, a special purpose, unaffiliated statutory trust, to offer its senior secured medium-term notes. Athene Global Funding uses the net proceeds from each sale to purchase one or more funding agreements from Athene. As of March 31, 2022, Athene had $22.5 billion of FABN funding agreements outstanding. Athene had $12.3 billion of board-authorized FABN capacity remaining as of March 31, 2022.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
Athene established a secured funding agreement backed repurchase agreement (“FABR”) program, in which a special-purpose, unaffiliated entity entered into repurchase agreements with a bank and the proceeds of the repurchase agreements were used by the special purpose entity to purchase funding agreements from Athene. As of March 31, 2022, Athene had $2.0 billion of FABR funding agreements outstanding.
Pledged Assets and Funds in Trust (Restricted Assets)
Athene’s total restricted assets included on the condensed consolidated statements of financial condition are as follows:
| (In millions) | March 31, 2022 | ||||
| AFS securities | $ | ||||
| Trading securities | |||||
| Equity securities | |||||
| Mortgage loans | |||||
| Investment funds | |||||
| Derivative assets | |||||
| Other investments | |||||
| Restricted cash and cash equivalents | |||||
| Total restricted assets | $ | ||||
The restricted assets are primarily related to reinsurance trusts established in accordance with coinsurance agreements and the FHLB and FABR funding agreements described above.
Letters of Credit
Athene has undrawn letters of credit totaling $1.4 billion as of March 31, 2022. These letters of credit were issued for Athene’s reinsurance program and have expirations through December 10, 2023.
Litigation
The Company is party to various legal actions arising from time to time in the ordinary course of business including claims and lawsuits, arbitrations, reviews, investigations or proceedings by governmental and self-regulatory agencies regarding the Company’s business.
In 2000 and 2001, two insurance companies which were subsequently merged into Athene Annuity and Life Company, a wholly owned subsidiary of Athene (“AAIA”), purchased broad based variable corporate-owned life insurance (“COLI”) policies from American General Life Insurance Company (“American General”). In January 2012, the COLI policy administrator delivered to AAIA a supplement to the existing COLI policies and advised that American General and ZC Resource Investment Trust (“ZC Trust”) had unilaterally implemented changes set forth in the supplement that, if effective, would: (1) potentially negatively impact the crediting rate for the policies and (2) change the exit and surrender protocols set forth in the policies. In March 2013, AAIA filed suit against American General, ZC Trust, and ZC Resource LLC in Chancery Court in Delaware, seeking, among other relief, a declaration that the changes set forth in the supplement were ineffectual and in breach of the parties’ agreement. The parties filed cross motions for judgment as a matter of law, and the court granted defendants’ motion and dismissed without prejudice on ripeness grounds. The issue that negatively impacts the crediting rate for one of the COLI policies has subsequently been triggered and, on April 3, 2018, AAIA filed suit against the same defendants in Chancery Court in Delaware seeking substantially similar relief. Defendants moved to dismiss and the court heard oral arguments on February 13, 2019. The court issued an opinion on July 31, 2019 that did not address the merits, but found that the Chancery Court did not have jurisdiction over AAIA’s claims and directed AAUA to either amend our complaint or transfer the matter to Delaware Superior Court. The matter was transferred to the Delaware Superior Court. Defendants renewed their motion to dismiss and the Superior Court heard oral arguments on December 18, 2019. The Superior Court issued an opinion on May 18, 2020 in which it granted in part and denied in part defendants’ motion. The Superior Court denied defendants’ motion with respect to the issue that negatively impacts the crediting rate for one of the COLI policies, which issue proceeded to discovery. The Superior Court granted defendants’ motion and dismissed without prejudice on ripeness grounds claims related to the exit and surrender protocols set forth in the policies, and dismissed defendant ZC Resource LLC. If the supplement were to have been deemed effective, the purported changes to the policies could have impaired AAIA’s ability to
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APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
access the value of guarantees associated with the policies. The parties engaged in discovery as well as discussions concerning whether the matter could be resolved without further litigation and, at the request of the parties, on August 11, 2021, the court entered an Amended Scheduling Order setting the trial date for June 2023. On December 27, 2021, the parties agreed in principle to a settlement, pursuant to which AAIA will be able to surrender the policies at any time and receive proceeds within six months. During the year ended December 31, 2021, Athene recorded an impairment of the COLI asset of $53 million, and an adjustment to deferred tax liabilities of $47 million, to reflect the terms of the settlement.
From 2015 to 2018, Athene’s U.S. insurance subsidiaries experienced increased complaints related to the conversion and administration of the block of life insurance business acquired in connection with Athene’s acquisition of Aviva USA and reinsured to affiliates of Global Atlantic. The life insurance policies included in this block have been and are currently being administered by AllianceOne Inc. (“AllianceOne”), a subsidiary of DXC Technology Company, which was retained by such Global Atlantic affiliates to provide third party administration services on such policies. AllianceOne also administers a small block of annuity policies that were on Aviva USA’s legacy policy administration systems that were also converted in connection with the acquisition of Aviva USA and have experienced some similar service and administration issues, but to a lesser degree. As a result of the difficulties experienced with respect to the administration of such policies, Athene has received notifications from several state regulators, including but not limited to New York State Department of Financial Services (“NYSDFS”), the California Department of Insurance (“CDI”) and the Texas Department of Insurance (“TDI”), indicating, in each case, that the respective regulator planned to undertake a market conduct examination or enforcement proceeding of the applicable U.S. insurance subsidiary relating to the treatment of policyholders subject to Athene’s reinsurance agreements with affiliates of Global Atlantic and the conversion of the life and annuity policies, including the administration of such blocks by AllianceOne. Athene or one or more of its subsidiaries have entered into consent orders with several state regulators, including the NYSDFS, the CDI and the TDI, to resolve underlying matters in the respective states. All fines and costs, including those associated with remediation plans, paid in connection with the consent orders are subject to indemnification by Global Atlantic or affiliates of Global Atlantic. Pursuant to the terms of the reinsurance agreements between Athene and the relevant affiliates of Global Atlantic, the applicable affiliates of Global Atlantic have financial responsibility for the ceded life block and are subject to significant administrative service requirements, including compliance with applicable law. The agreements also provide for indemnification to Athene, including for administration issues. In addition to the examinations and proceedings initiated to date, it is possible that other regulators may pursue similar formal examinations, inquiries or enforcement proceedings and that any examinations, inquiries and/or enforcement proceedings may result in fines, administrative penalties and payments to policyholders.
On August 3, 2017, a complaint was filed in the United States District Court for the Middle District of Florida against AAM, a senior partner of Apollo and a former principal of Apollo by Michael McEvoy on behalf of a purported class of employees of subsidiaries of CEVA Group, LLC (“CEVA Group”) who purchased shares in CEVA Investment Limited (“CIL”), the former parent company of CEVA Group. The complaint alleged that the defendants breached fiduciary duties to and defrauded the plaintiffs by inducing them to purchase shares in CIL and subsequently participating in a debt restructuring of CEVA Group in which shareholders of CIL did not receive a recovery. McEvoy subsequently revised his complaint to attempt to assert claims that do not belong to CIL. The amended complaint no longer named any individual defendants, but Apollo Management VI, L.P. and CEVA Group were added as defendants. The amended complaint sought damages of approximately €30 million and asserts, among other things, claims for violations of the Investment Advisers Act of 1940, breach of fiduciary duties, and breach of contract. On December 7, 2018, McEvoy filed his amended complaint in the District Court for the Middle District of Florida. On January 6, 2020, the Florida court granted in part Apollo’s motion to dismiss, dismissing McEvoy’s Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”) claim with prejudice, and denying without prejudice Apollo’s motion with respect to the remaining claims, and directing the parties to conduct limited discovery, and submit new briefing, solely with respect to the statute of limitations. On July 30, 2020, Apollo and CEVA filed a joint motion for summary judgment on statute of limitations grounds. On June 29, 2021, the district court issued a decision denying the defendants’ joint motion for summary judgment on statute of limitations grounds, and set deadlines on July 23, 2021 for the plaintiff to file an amended complaint and August 20, 2021 for defendants to answer or move to dismiss the amended complaint. Plaintiff filed his second amended complaint on July 23, 2021 which added alleged grounds for tolling the statute of limitations. Also on July 23, 2021, the defendants filed a joint motion for reconsideration with respect to aspects of the district court’s June 29, 2021 decision. On March 10, 2022, the court granted defendants’ motion for reconsideration and granted Apollo’s motion for summary judgment. On April 7, 2022, Plaintiff filed a motion to alter or amend the court’s order of March 10. The defendants, including Apollo, opposed that motion on April 28, 2022. Apollo believes that Plaintiff’s motion to alter or amend the court’s order of March 10 is without merit. No reasonable estimate of possible loss, if any, can be made at this time.
On December 21, 2017, several entities referred to collectively as “Harbinger” commenced an action in New York Supreme Court captioned Harbinger Capital Partners II LP et al. v. Apollo Global Management LLC, et al. (No. 657515/2017). The
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APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
complaint named as defendants AAM, and funds managed by Apollo that invested in SkyTerra Communications, Inc. (“SkyTerra”), among others. The complaint alleged that during the period of Harbinger’s various equity and debt investments in SkyTerra from 2004 to 2010, the defendants concealed from Harbinger material defects in SkyTerra technology. The complaint further alleged that Harbinger would not have made investments in SkyTerra totaling approximately $1.9 billion had it known of the defects, and that the public disclosure of these defects ultimately led to SkyTerra filing for bankruptcy in 2012 (after it had been renamed LightSquared). The complaint sought $1.9 billion in damages, as well as punitive damages, interest, costs, and fees. On June 12, 2019, Harbinger voluntarily discontinued the state action without prejudice. On June 8, 2020, Harbinger refiled its litigation in New York Supreme Court, captioned Harbinger Capital Partners II, LP et al. v. Apollo Global Management, LLC et al. (No. 652342/2020). The complaint adds eight new defendants and three new claims relating to Harbinger’s contention that the new defendants induced Harbinger to buy CCTV One Four Holdings, LLC (“CCTV”) to support SkyTerra’s network even though they allegedly knew that the network had material defects. On November 23, 2020, Defendants refiled a bankruptcy motion, and on November 24, 2020, filed in the state court a motion to stay the state court proceedings pending a ruling by the bankruptcy court on the bankruptcy motion. On February 1, 2021, the bankruptcy court denied the bankruptcy motion. On March 31, 2021, Defendants filed their motions to dismiss the New York Supreme Court action. Hearings were held on the motions to dismiss on February 15, 2022 and February 18, 2022, and the motions remain pending. Apollo believes the claims in this action are without merit. Because this action is in the early stages, no reasonable estimate of possible loss, if any, can be made at this time.
On November 1, 2019, plaintiff Benjamin Fongers filed a putative class action in Illinois Circuit Court, Cook County, against CareerBuilder, LLC (“CareerBuilder”) and AAM. Plaintiff alleges that in March 2019, CareerBuilder changed its compensation plan so that sales representatives such as Fongers would (i) receive reduced commissions; and (ii) only be able to receive commissions for accounts they originated that were not reassigned to anyone else, a departure from the earlier plan. Plaintiff also claims that the plan applied retroactively to deprive sales representatives of commissions to which they were earlier entitled. Plaintiff alleges that AAM exercises complete control over CareerBuilder and thus, CareerBuilder acts as AAM’s agent. Based on these allegations, Plaintiff alleges claims against both defendants for breach of written contract, breach of implied contract, unjust enrichment, violation of the Illinois Sales Representative Act, and violation of the Illinois Wage and Payment Collection Act. The defendants removed the action to the Northern District of Illinois on December 5, 2019, and Plaintiff moved to remand on January 6, 2020. On October 21, 2020, the district court granted the motion to remand. On January 11, 2021, the district court ordered the clerk of court to take the necessary steps to transfer the case back to Illinois Circuit Court, Cook County. On March 8, 2021, Plaintiff filed a motion under 28 U.S.C. § 1447(c) to recover attorneys’ fees of approximately $35,000 for the remand briefing. Defendants filed their opposition on March 31, 2021, and Plaintiff replied on April 14, 2021. Defendants filed motions to dismiss the complaint in the Illinois Circuit Court, Cook County on June 11, which were fully briefed on August 13, 2021. CareerBuilder has also filed a Motion for a Protective Order and to Stay Discovery pending the outcome of the motions to dismiss. On February 7, 2022, the court held a hearing on the motions to dismiss and the request to stay discovery. At the hearing, the court took the motions to dismiss under advisement and granted CareerBuilder’s motion to stay discovery. On March 11, 2022, the parties filed a Notice of Settlement notifying the court that the parties have reached an agreement in principle to resolve the case in full.
In March 2020, Frank Funds, which claims to be a former shareholder of MPM Holdings, Inc. (“MPM”), commenced an action in the Delaware Court of Chancery, captioned Frank Funds v. Apollo Global Management, Inc., et al., C.A. No. 2020-0130, against AAM, certain former MPM directors (including three Apollo officers and employees), and members of the consortium that acquired MPM in a May 2019 merger. The complaint asserts, on behalf of a putative class of former MPM shareholders, a claim against Apollo for breach of its fiduciary duties as MPM’s alleged controlling shareholder in connection with the May 2019 merger. Frank Funds seeks unspecified compensatory damages. On July 23, 2019, a group of former MPM shareholders filed an appraisal petition in Delaware Chancery Court seeking the fair value of their MPM shares that were purchased through MPM’s May 15, 2019 merger, in an action captioned In re Appraisal of MPM Holdings, Inc., C.A. No. 2019-0519 (Del. Ch.). On June 3, 2020, petitioners moved for leave to file a verified amended appraisal petition and class-action complaint that included claims for breach of fiduciary duty and/or aiding and abetting breaches of fiduciary duty against AAM, the Apollo-affiliated fund that owned MPM’s shares before the merger, certain former MPM directors (including three Apollo employees), and members of the consortium that acquired MPM, based on alleged actions related to the May 2019 merger. The petitioners also sought to consolidate their appraisal proceeding with the Frank Funds action. On November 13, 2020, the Chancery Court granted the parties’ stipulated order to consolidate the two matters, and on December 21, 2020, the Chancery Court granted petitioners’ motion for leave to file the proposed amended complaint. This new consolidated action is captioned In Re MPM Holdings Inc. Appraisal and Stockholder Litigation, C.A. No. 2019-0519 (Del Ch.). On January 13, 2022, the Chancery Court denied Apollo’s motion to dismiss. Apollo believes the claims in this action are without merit. Because this action is in the early stages, no reasonable estimate of possible loss, if any, can be made at this time.
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APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
On May 29, 2020, plaintiff Vrajeshkumar Patel filed a putative stockholder derivative and class action complaint in the Delaware Court of Chancery against Talos Energy, Inc. (“Talos”), all of the members of Talos’s board of directors (including two Apollo partners), Riverstone Holdings, LLC (“Riverstone”), AAM, and Guggenheim Securities, LLC in connection with the acquisition of certain assets from Castex Energy 2014, LLC and ILX Holdings, LLC in February 2020. The complaint asserts direct and derivative claims against Apollo, Riverstone, and the individual defendants for breach of their fiduciary duties. The plaintiff alleges that Apollo and Riverstone comprise a controlling shareholder group. The complaint seeks, among other relief, class certification and unspecified money damages. On August 4, 2020, the defendants filed motions to dismiss. On May 17, 2021, the court ordered that the Riverstone funds and Apollo funds that hold the relevant Talos stock be joined as necessary parties. The parties filed a stipulation, which was entered by the court on June 7, 2021, adding Riverstone Talos Energy Equityco LLC, Riverstone Talos Energy Debtco LLC, Apollo Talos Holdings, L.P., and AP Talos Energy Debtco LLC as defendants in the action. On September 30, 2021, the court dismissed the complaint in its entirety against all defendants. Plaintiff has filed an appeal of this decision, and that appeal is pending. Apollo believes that the Plaintiff’s arguments on appeal are without merit. No reasonable estimate of possible loss, if any, can be made at this time.
On August 4, 2020, a putative class action complaint was filed in the United States District Court for the District of Nevada against PlayAGS Inc. (“PlayAGS”), all of the members of PlayAGS’s board of directors (including three directors who are affiliated with Apollo), certain underwriters of PlayAGS (including Apollo Global Securities, LLC), as well as AAM, Apollo Investment Fund VIII, L.P., Apollo Gaming Holdings, L.P., and Apollo Gaming Voteco, LLC (these last four parties, together, the “Apollo Defendants”). The complaint asserts claims against all defendants arising under the Securities Act of 1933 in connection with certain secondary offerings of PlayAGS stock conducted in August 2018 and March 2019, alleging that the registration statements issued in connection with those offerings did not fully disclose certain business challenges facing PlayAGS. The complaint further asserts a control person claim under Section 20(a) of the Exchange Act against the Apollo Defendants and the director defendants (including the directors affiliated with Apollo), alleging such defendants were responsible for certain misstatements and omissions by PlayAGS about its business . Plaintiffs filed amended complaints on January 11, 2021 and again on March 25, 2021. On May 24, 2021, the Apollo Defendants filed a motion to dismiss the complaint, which motion remains pending. Apollo believes the claims in this action are without merit. Because this action is in the early stages, no reasonable estimate of possible loss, if any, can be made at this time.
On or around October 19, 2021, a purported stockholder of AAM filed a complaint against AAM in the Court of Chancery of the State of Delaware seeking the disclosure of certain additional documents pursuant to Section 220 of the Delaware General Corporation Law. The complaint alleges that the stockholder seeks to investigate (a) whether wrongdoing or mismanagement occurred in connection with the decision of the AAM board of directors to pay, in connection with the elimination of the AAM Up-C structure, the partners of AP Professional Holdings, L.P. (including the Former Managing Partners) a payment of cash equal to $3.66 per AOG Unit held, which the complaint characterizes as providing $640 million for “Tax Receivable Agreement” assets (which the stockholder alleges are worth nothing); (b) the independence and disinterestedness of AAM directors and/or officers; and (c) potential damages relating thereto.
18. Segments
The Company conducts its business through three reportable segments: (i) Asset Management, (ii) Retirement Services and (iii) Principal Investing. Segment information is utilized by the Company’s chief operating decision maker to assess performance and to allocate resources.
The performance is measured by the Company’s chief operating decision maker on an unconsolidated basis because management makes operating decisions and assesses the performance of each of the Company’s business segments based on financial and operating metrics and data that exclude the effects of consolidation of any of the affiliated funds.
Segment Reporting Changes
In connection with the completion of the Mergers, Apollo undertook a strategic review of its operating structure and business segments to assess the performance of its businesses and the allocation of resources. As a result, for periods following the Mergers, Apollo is reporting results through three
In connection with these changes, all prior periods have been recast to conform to the new presentation. Consequently, this information will be different from the historical segment financial results previously reported by Apollo in its reports filed with the SEC.
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APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Adjusted Segment Income
Adjusted Segment Income, or “ASI”, is the key performance measure used by management in evaluating the performance of the asset management, retirement services, and principal investing segments. Management uses Adjusted Segment Income to make key operating decisions such as the following:
•decisions related to the allocation of resources such as staffing decisions including hiring and locations for deployment of the new hires;
•decisions related to capital deployment such as providing capital to facilitate growth for the business and/or to facilitate expansion into new businesses;
•decisions related to expenses, such as determining annual discretionary bonuses and equity-based compensation awards to its employees. With respect to compensation, management seeks to align the interests of certain professionals and selected other individuals with those of the investors in the funds and those of Apollo’s stockholders by providing such individuals a profit sharing interest in the performance fees earned in relation to the funds. To achieve that objective, a certain amount of compensation is based on Apollo’s performance and growth for the year; and
•decisions related to the amount of earnings available for dividends to common stockholders and holders of equity-based awards that participate in dividends.
Adjusted Segment Income is a measure of profitability and has certain limitations in that it does not take into account certain items included under U.S. GAAP. Adjusted Segment Income is the sum of (i) Fee Related Earnings, (ii) Spread Related Earnings and (iii) Principal Investing Income. Adjusted Segment Income excludes the effects of the consolidation of any of the related funds and SPACs, interest and other financing costs related to AGM not attributable to any specific segment, taxes and related payables, transaction-related charges and any acquisitions. Transaction-related charges includes equity-based compensation charges, the amortization of intangible assets, contingent consideration, and certain other charges associated with acquisitions, and restructuring charges. In addition, Adjusted Segment Income excludes non-cash revenue and expense related to equity awards granted by unconsolidated related parties to employees of the Company, compensation and administrative related expense reimbursements, as well as the assets, liabilities and operating results of the funds and VIEs that are included in the condensed consolidated financial statements.
Adjusted Segment Income may not be comparable to similarly titled measures used by other companies and is not a measure of performance calculated in accordance with U.S. GAAP. We use Adjusted Segment Income as a measure of operating performance, not as a measure of liquidity. Adjusted Segment Income should not be considered in isolation or as a substitute for net income or other income data prepared in accordance with U.S. GAAP. The use of Adjusted Segment Income without consideration of related U.S. GAAP measures is not adequate due to the adjustments described above. Management compensates for these limitations by using Adjusted Segment Income as a supplemental measure to U.S. GAAP results, to provide a more complete understanding of our performance as management measures it. A reconciliation of Adjusted Segment Income to its most directly comparable U.S. GAAP measure of income (loss) before income tax provision can be found in this footnote.
Fee Related Earnings
Fee Related Earnings (“FRE”) is a component of Adjusted Segment Income that is used to assess the performance of the Asset Management segment. FRE is the sum of (i) management fees, (ii) advisory and transaction fees, (iii) fee-related performance fees from indefinite term vehicles, that are measured and received on a recurring basis and not dependent on realization events of the underlying investments and (iv) other income, net, less (a) fee-related compensation, excluding equity-based compensation, (b) non-compensation expenses incurred in the normal course of business, (c) placement fees and (d) non-controlling interests in the management companies of certain funds the Company manages.
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APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Spread Related Earnings
Spread Related Earnings (“SRE”) is a component of Adjusted Segment Income that is used to assess the performance of the Retirement Services segment, excluding certain market volatility and certain expenses related to integration, restructuring, equity-based compensation, and other expenses. For the Retirement Services segment, SRE equals the sum of (i) the net investment earnings on Athene’s net invested assets and (ii) management fees earned on the ADIP share of ACRA assets, less (x) cost of funds, (y) operating expenses excluding equity-based compensation and (z) financing costs including interest expense and preferred dividends, if any, paid to Athene’s preferred stockholders.
Principal Investing Income
Principal Investing Income (“PII”) is a component of Adjusted Segment Income that is used to assess the performance of the Principal Investing segment. For the Principal Investing segment, PII is the sum of (i) realized performance fees, excluding realizations received in the form of shares, and (ii) realized investment income, less (x) realized principal investing compensation expense, excluding expense related to equity-based compensation, and (y) certain corporate compensation and non-compensation expenses.
The following present financial data for the Company’s reportable segments.
| Three months ended March 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
Asset Management |
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Management fees1
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$ | $ | ||||||||||||
| Advisory and transaction fees, net | ||||||||||||||
| Fee-related performance fees | ||||||||||||||
| Fee-related compensation | ( |
( |
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| Other operating expenses | ( |
( |
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| Fee Related Earnings | ||||||||||||||
| Retirement Services | ||||||||||||||
| Fixed income and other investment income, net | ||||||||||||||
| Alternative investment income, net | ||||||||||||||
| Strategic capital management fees | ||||||||||||||
| Cost of funds | ( |
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| Other operating expenses | ( |
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| Interest and other financing costs | ( |
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| Spread Related Earnings | ||||||||||||||
| Principal Investing | ||||||||||||||
| Realized performance fees | ||||||||||||||
| Realized investment income | ||||||||||||||
| Principal investing compensation | ( |
( |
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| Other operating expenses | ( |
( |
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| Principal Investing Income | ||||||||||||||
| Adjusted Segment Income | $ | $ | ||||||||||||
| Segment Assets: | ||||||||||||||
| Asset Management | $ | |||||||||||||
| Retirement Services | ||||||||||||||
| Principal Investing | ||||||||||||||
Total Assets2
|
$ | |||||||||||||
1 Includes intersegment management fees from Retirement Services of $ |
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2 Refer below for a reconciliation of total assets for Apollo’s total reportable segments to total consolidated assets.
|
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APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following reconciles total consolidated revenues to total asset management fee related revenues:
| Three months ended March 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Total Consolidated Revenues | $ | $ | |||||||||
| Retirement services GAAP revenue | |||||||||||
Equity awards granted by unconsolidated related parties, reimbursable expenses and other1
|
( |
( |
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Adjustments related to consolidated funds and VIEs1
|
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| Performance fees | ( |
( |
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| Principal investment income | ( |
( |
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| Retirement services management fees | |||||||||||
| Total Asset Management Fee Related Revenues | $ | $ | |||||||||
1 Represents advisory fees, management fees and performance fees earned from consolidated VIEs which are eliminated in consolidation. Includes non-cash revenues related to equity awards granted by unconsolidated related parties to employees of the Company and certain compensation and administrative related expense reimbursements.
| |||||||||||
The following presents the reconciliation of income before income tax provision reported in the condensed consolidated statements of operations to Adjusted Segment Income:
| Three months ended March 31, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Income (loss) before income tax provision (benefit) | $ | ( |
$ | ||||||||
Asset Management Adjustments: |
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Equity-based profit sharing expense and other1
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| Equity-based compensation | |||||||||||
| Preferred dividends | ( |
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Transaction-related charges2
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( |
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Merger-related transaction and integration costs3
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| (Gains) losses from change in tax receivable agreement liability | ( |
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| Net (income) loss attributable to non-controlling interests in consolidated entities | ( |
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| Unrealized performance fees | ( |
( |
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| Unrealized profit sharing expense | |||||||||||
HoldCo interest and other financing costs4
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| Unrealized principal investment (income) loss | ( |
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| Unrealized net (gains) losses from investment activities and other | ( |
( |
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| Retirement Services Adjustments: | |||||||||||
| Investment (gains) losses, net of offsets | |||||||||||
| Change in fair values of derivatives and embedded derivatives - FIAs, net of offsets | |||||||||||
| Integration, restructuring and other non-operating expenses | |||||||||||
| Equity-based compensation | |||||||||||
| Adjusted Segment Income | $ | $ | |||||||||
1 Equity-based profit sharing expense and other includes certain profit sharing arrangements in which a portion of performance fees distributed to the general partner are required to be used by employees of Apollo to purchase restricted shares of common stock or RSUs, which are granted under the Equity Plan. Equity-based profit sharing expense and other also includes performance grants which are tied to the Company’s receipt of performance fees, within prescribed periods, sufficient to cover the associated equity-based compensation expense.
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2 Transaction-related charges include contingent consideration, equity-based compensation charges and the amortization of intangible assets and certain other charges associated with acquisitions, and restructuring charges.
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3 Merger-related transaction and integration costs includes advisory services, technology integration, equity-based compensation charges and other costs associated with the Mergers.
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4 Represents interest and other financing costs related to AGM not attributable to any specific segment.
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90
APOLLO GLOBAL MANAGEMENT, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the reconciliation of the Company’s total reportable segment assets to total assets:
| (In millions) | March 31, 2022 | December 31, 2021 | |||||||||
| Total reportable segment assets | $ | $ | |||||||||
Adjustments1
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| Total assets | $ | $ | |||||||||
1 Represents the addition of assets of consolidated funds and VIEs and consolidation elimination adjustments.
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19. Subsequent Events
Dividends
On May 5, 2022, the Company declared a cash dividend of $0.40 per share of common stock, which will be paid on May 31, 2022 to holders of record at the close of business on May 18, 2022.
Griffin Capital
On May 3, 2022, the Company completed the acquisition of the U.S. asset management business of Griffin Capital (“Griffin”) in exchange for closing consideration of approximately $300 million and contingent consideration of up to $150 million, substantially all of which will be settled in shares of AGM common stock, per the transaction agreement signed December 2, 2021. This follows, and is incremental to, the March 2022 close of Griffin’s wealth distribution business. As a result of the final close, the Griffin Institutional Access Real Estate Fund and the Griffin Institutional Access Credit Fund are now advised by Apollo and have been renamed the Apollo Diversified Real Estate Fund and Apollo Diversified Credit Fund, respectively.
91
ITEM 1A. UNAUDITED SUPPLEMENTAL PRESENTATION OF STATEMENTS OF FINANCIAL CONDITION
| As of March 31, 2022 | |||||||||||||||||||||||
| (In millions) | Apollo Global Management, Inc. and Consolidated Subsidiaries | Consolidated Funds and VIEs | Eliminations | Consolidated | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Asset Management | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,245 | $ | 1 | $ | — | $ | 1,246 | |||||||||||||||
| Restricted cash and cash equivalents | 2 | 1,036 | — | 1,038 | |||||||||||||||||||
| Investments | 6,239 | 818 | (327) | 6,730 | |||||||||||||||||||
| Assets of consolidated variable interest entities | |||||||||||||||||||||||
| Cash and cash equivalents | — | 272 | — | 272 | |||||||||||||||||||
| Investments | — | 3,772 | — | 3,772 | |||||||||||||||||||
| Other assets | — | 97 | (5) | 92 | |||||||||||||||||||
| Due from related parties | 467 | (8) | (92) | 367 | |||||||||||||||||||
| Goodwill | 131 | — | — | 131 | |||||||||||||||||||
| Other assets | 2,013 | 2 | — | 2,015 | |||||||||||||||||||
| 10,097 | 5,990 | (424) | 15,663 | ||||||||||||||||||||
| Retirement Services | |||||||||||||||||||||||
| Cash and cash equivalents | 8,523 | — | — | 8,523 | |||||||||||||||||||
| Restricted cash and cash equivalents | 834 | — | — | 834 | |||||||||||||||||||
| Investments | 171,371 | — | (1) | 171,370 | |||||||||||||||||||
| Investments in related parties | 33,562 | — | (8,698) | 24,864 | |||||||||||||||||||
| Assets of consolidated variable interest entities | |||||||||||||||||||||||
| Cash and cash equivalents | — | 521 | — | 521 | |||||||||||||||||||
| Investments | 1,656 | 16,359 | — | 18,015 | |||||||||||||||||||
| Other assets | 181 | 134 | — | 315 | |||||||||||||||||||
| Reinsurance recoverable | 4,648 | — | — | 4,648 | |||||||||||||||||||
| Deferred acquisition costs, deferred sales inducements and value of business acquired | 4,713 | — | — | 4,713 | |||||||||||||||||||
| Goodwill | 4,181 | — | — | 4,181 | |||||||||||||||||||
| Other assets | 7,964 | — | (56) | 7,908 | |||||||||||||||||||
| 237,633 | 17,014 | (8,755) | 245,892 | ||||||||||||||||||||
| Total Assets | $ | 247,730 | $ | 23,004 | $ | (9,179) | $ | 261,555 | |||||||||||||||
| (Continued) | |||||||||||||||||||||||
92
| As of March 31, 2022 | |||||||||||||||||||||||
| (In millions) | Apollo Global Management, Inc. and Consolidated Subsidiaries | Consolidated Funds and VIEs | Eliminations | Consolidated | |||||||||||||||||||
| Liabilities and Equity | |||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Asset Management | |||||||||||||||||||||||
| Accounts payable, accrued expenses, and other liabilities | $ | 3,090 | $ | 147 | $ | (29) | $ | 3,208 | |||||||||||||||
| Due to related parties | 1,131 | 12 | (22) | 1,121 | |||||||||||||||||||
| Debt | 2,815 | — | — | 2,815 | |||||||||||||||||||
| Liabilities of consolidated variable interest entities | |||||||||||||||||||||||
| Debt, at fair value | — | 2,071 | (173) | 1,898 | |||||||||||||||||||
| Other liabilities | $ | — | 76 | (1) | 75 | ||||||||||||||||||
| 7,036 | 2,306 | (225) | 9,117 | ||||||||||||||||||||
| Retirement Services | |||||||||||||||||||||||
| Interest sensitive contract liabilities | 164,369 | — | — | 164,369 | |||||||||||||||||||
| Future policy benefits | 48,093 | — | — | 48,093 | |||||||||||||||||||
| Debt | 3,287 | — | — | 3,287 | |||||||||||||||||||
| Payables for collateral on derivatives and securities to repurchase | 7,071 | — | — | 7,071 | |||||||||||||||||||
| Other liabilities | 2,611 | — | — | 2,611 | |||||||||||||||||||
| Liabilities of consolidated variable interest entities | |||||||||||||||||||||||
| Debt, at fair value | — | 5,905 | — | 5,905 | |||||||||||||||||||
| Other liabilities | 133 | 763 | (72) | 824 | |||||||||||||||||||
| 225,564 | 6,668 | (72) | 232,160 | ||||||||||||||||||||
| Total Liabilities | 232,600 | 8,974 | (297) | 241,277 | |||||||||||||||||||
Commitments and Contingencies (note 17) |
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| Redeemable non-controlling interests: | |||||||||||||||||||||||
| Redeemable non-controlling interests | — | 1,782 | 8 | 1,790 | |||||||||||||||||||
| Equity | |||||||||||||||||||||||
| Additional paid in capital | 15,852 | (119) | 29 | 15,762 | |||||||||||||||||||
| Retained earnings (accumulated deficit) | (67) | 10,252 | (10,278) | (93) | |||||||||||||||||||
| Accumulated other comprehensive income (loss) | (4,705) | 7 | 22 | (4,676) | |||||||||||||||||||
| Total AGM Stockholders’ Equity | 11,080 | 10,140 | (10,227) | 10,993 | |||||||||||||||||||
| Non-controlling interests | 4,050 | 2,108 | 1,337 | 7,495 | |||||||||||||||||||
| Total Equity | 15,130 | 12,248 | (8,890) | 18,488 | |||||||||||||||||||
| Total Liabilities and Equity | $ | 247,730 | $ | 23,004 | $ | (9,179) | $ | 261,555 | |||||||||||||||
| (Concluded) | |||||||||||||||||||||||
93
| As of December 31, 2021 | |||||||||||||||||||||||
| (In millions) | Apollo Global Management, Inc. and Consolidated Subsidiaries | Consolidated Funds and VIEs | Eliminations | Consolidated | |||||||||||||||||||