10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 7, 2023
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 |
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FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023 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)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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 x 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 x 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 x
As of August 2, 2023, there were 566,809,153 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” or future or conditional verbs, such as “will,” “should,” “could,” or “may,” and variations of such words 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 inflation, market conditions and interest rate fluctuations generally, the impact of COVID-19, the impact of energy market dislocation, 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, the accuracy of management’s assumptions and estimates, our dependence on certain key personnel, 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, and litigation risks, among others. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in the Company’s annual report on Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on March 1, 2023 (the “2022 Annual Report”), as such factors may be updated from time to time in our periodic filings with 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.
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 (as defined below); “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 | ||||
| AAA | Apollo Aligned Alternatives Aggregator, LP | ||||
| AADE | Athene Annuity & Life Assurance Company | ||||
| AARe | Athene Annuity Re Ltd., a Bermuda reinsurance subsidiary | ||||
| ABS | Asset-backed securities | ||||
| Accord+ | Apollo Accord+ Fund, L.P., together with its parallel funds and alternative investment vehicles | ||||
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| Accord I | Apollo Accord Master Fund, L.P., together with its feeder funds | ||||
| Accord II | Apollo Accord Master Fund II, L.P., together with its feeder funds | ||||
| Accord III | Apollo Accord Master Fund III, L.P., together with its feeder funds | ||||
| Accord III B | Apollo Accord Master Fund III B, L.P., together with its feeder funds | ||||
| Accord IV | Apollo Accord Fund IV, L.P., together with its parallel funds and alternative investment vehicles | ||||
| Accord V | Apollo Accord Fund V, L.P., together with its parallel funds and alternative investment vehicles | ||||
| ACRA | ACRA 1 and ACRA 2 | ||||
| ACRA 1 | Athene Co-Invest Reinsurance Affiliate Holding Ltd., together with its subsidiaries | ||||
| ACRA 2 | Athene Co-Invest Reinsurance Affiliate Holding 2 Ltd., together with its subsidiaries | ||||
| ADCF | Apollo Diversified Credit Fund | ||||
| ADIP | ADIP 1 and ADIP 2 | ||||
| ADIP 1 | Apollo/Athene Dedicated Investment Program (A), L.P., together with its parallel funds, a series of funds managed by Apollo including third-party capital that, through ACRA 1, invests alongside Athene in certain investments | ||||
| ADIP 2 | Apollo/Athene Dedicated Investment Program II, L.P., together with its parallel funds, a series of funds managed by Apollo including third-party capital that, through ACRA 2, invests alongside Athene in certain investments | ||||
| ADREF | Apollo Diversified Real Estate Fund | ||||
| ADS | Apollo Debt Solutions BDC, a non-traded business development company managed by Apollo | ||||
| AFS | Available-for-sale | ||||
| AFT | Apollo Senior Floating Rate Fund, Inc. | ||||
| AIF | Apollo Tactical Income Fund, Inc. | ||||
| AIOF I | Apollo Infra Equity US Fund, L.P. and Apollo Infra Equity International Fund, L.P., including their feeder funds and alternative investment vehicles | ||||
| AIOF II | Apollo Infrastructure Opportunities Fund II, L.P., together with its parallel funds and alternative investment vehicles | ||||
| ALRe | Athene Life Re Ltd., a Bermuda reinsurance subsidiary | ||||
| Alternative investments | Alternative investments, including investment funds, VIEs and certain equity securities due to their underlying characteristics | ||||
| 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 alternative investment vehicles | ||||
| ANRP II | Apollo Natural Resources Partners II, L.P., together with its 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. | ||||
| 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 | ||||
| APSG II | Apollo Strategic Growth Capital II | ||||
| ARI | Apollo Commercial Real Estate Finance, Inc. | ||||
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| 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 certain 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 advises, 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 believes 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 deployment 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, “Athene”), 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, “Athora”), a strategic liabilities platform that acquires or reinsures blocks of insurance business in the German and broader European life insurance market (collectively, the “Athora Accounts”). Apollo, 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. | ||||
| Atlas | An equity investment of AAA and refers to certain subsidiaries of Atlas Securitized Products Holdings LP | ||||
| 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 | ||||
| Bermuda RBC | The risk-based capital ratio of Athene’s non-U.S. reinsurance subsidiaries by applying NAIC risk-based capital factors to the statutory financial statements on an aggregate basis. Adjustments are made to (1) exclude U.S. subsidiaries which are included within Athene’s U.S. RBC Ratio, (2) exclude interests in other non-insurance subsidiary holding companies from its capital base and (3) limit RBC concentration charges such that when they are applied to determine target capital, the charges do not exceed 100% of the asset’s carrying value. | ||||
| BMA | Bermuda Monetary Authority | ||||
| Capital solutions fees and other, net | Primarily includes transaction fees earned by our capital solutions business which we refer to as Apollo Capital Solutions (“ACS”) related to underwriting, structuring, arrangement and placement of debt and equity securities, and syndication for funds managed by Apollo, portfolio companies of funds managed by Apollo, and third parties. Capital solutions fees and other, net also includes advisory fees for the ongoing monitoring of portfolio operations and directors’ fees. These fees also include certain offsetting amounts, including reductions in management fees related to a percentage of these fees recognized (“management fee offset”) and other additional revenue sharing arrangements. |
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| CDO | Collateralized debt obligation | ||||
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| CLO | Collateralized loan obligation | ||||
| CMBS | Commercial mortgage-backed securities | ||||
| CML | Commercial mortgage loans | ||||
| Contributing Partners | Partners and their related parties (other than Messrs. Leon Black, Joshua Harris and Marc Rowan, our co-founders) who indirectly beneficially owned AOG units. | ||||
| Consolidated RBC | The consolidated risk-based capital ratio of Athene’s non-U.S. reinsurance and U.S. insurance subsidiaries calculated by applying NAIC risk-based capital factors to the statutory financial statements on an aggregate basis, including interests in other non-insurance subsidiary holding companies; with an adjustment in Bermuda and non-insurance holding companies to limit RBC concentration charges such that when they are applied to determine target capital, the charges do not exceed 100% of the asset’s carrying value. | ||||
| Cost of funds | Cost of funds includes liability costs related to cost of crediting on both deferred annuities, including, with respect to Athene's fixed indexed annuities, option costs, and institutional costs related to institutional products, as well as other liability costs, but does not include the proportionate share of the ACRA cost of funds associated with the noncontrolling interest. Other liability costs include DAC, DSI and VOBA amortization, certain market risk benefit costs, the cost of liabilities on products other than deferred annuities and institutional products, premiums and certain product charges and other revenues. Costs related to business that Athene has added through assumed reinsurance transactions are included and costs related to business that Athene has exited through ceded reinsurance transactions are excluded. Cost of funds is computed as the total liability costs divided by the average net invested assets for the relevant period, presented on an annualized basis for interim periods. | ||||
| Credit Strategies | Apollo Credit Strategies Master Fund Ltd., together with its feeder funds | ||||
| CS | Credit Suisse AG | ||||
| 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 | ||||
| EPF Funds | Apollo European Principal Finance Fund, L.P., Apollo European Principal Finance Fund II (Dollar A), L.P., Apollo European Principal Finance Fund III (Dollar A), L.P., and Apollo European Principal Finance Fund IV (Dollar A), L.P., together with their parallel funds and alternative investment vehicles | ||||
| EPF III | Apollo European Principal Finance Fund III (Dollar A), L.P., together with its parallel funds and alternative investment vehicles | ||||
| EPF IV | Apollo European Principal Finance Fund IV (Dollar A), L.P., together with its parallel funds and alternative investment vehicles | ||||
| 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 | ||||
| FCI Funds | Financial Credit Investment I, L.P., Financial Credit Investment II, L.P., together with its feeder funds, Financial Credit Investment Fund III L.P., Financial Credit Investment IV, L.P., together with its feeder funds, and Apollo/Athene Dedicated Investment Program (A), L.P., together with its parallel funds, a series of funds managed by Apollo including third-party capital that, through ACRA, invests alongside Athene in certain investments | ||||
| 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 Segment Income that is used to assess the performance of the Asset Management segment. FRE is the sum of (i) management fees, (ii) capital solutions and other related 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 | ||||
| Fund X | Apollo Investment Fund X, L.P. (together with its parallel funds and alternative investment vehicles) |
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Gross capital deployment |
The gross capital that has been invested 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 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. | ||||
| 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 June 30, 2023 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. | ||||
| Gross IRR of 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 June 30, 2023 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. | ||||
| 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 Apollo Asset Management Europe LLP, a subsidiary of AAM (“AAME”) and Apollo Asset Management PC LLP, a wholly-owned subsidiary of AAME (“AAME PC”) |
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| 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. | ||||
| Market risk benefits | Guaranteed lifetime withdrawal benefits and guaranteed minimum death benefits | ||||
| 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 | ||||
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| MFIC | MidCap Financial Investment Corporation (f/k/a Apollo Investment Corporation or “AINV”) | ||||
| MidCap Financial | MidCap FinCo Designated Activity Company | ||||
| Modco | Modified coinsurance | ||||
| NAIC | National Association of Insurance Commissioners | ||||
| NAV | Net Asset Value | ||||
| Net invested assets | Represent the investments that directly back Athene's net reserve liabilities as well as surplus assets. Net invested assets include Athene’s (a) total investments on the condensed consolidated statements of financial condition, with available-for-sale securities, trading securities and mortgage loans 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 and VOE 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 adjustment for the allowance for credit losses. Net invested assets exclude assets associated with funds withheld liabilities related to business exited through reinsurance agreements and derivative collateral (offsetting the related cash positions) and include investments supporting assumed funds withheld and modco agreements in order to match the assets with the income received. Net invested assets include Athene’s economic ownership of ACRA investments but do not include the investments associated with the noncontrolling interest. | ||||
| Net investment earned rate | Computed as income from Athene’s net invested assets, excluding the proportionate share of the ACRA net investment income associated with the noncontrolling interest, 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 Athene’s investment performance plus its strategic capital management fees less its total cost of funds, presented on an annualized basis for interim periods. | ||||
| Net IRR of accord series 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. | ||||
| Net IRR of a traditional private equity or the hybrid value funds | The gross IRR applicable to a fund, 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 infrastructure funds | The cumulative cash flows in a 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 the reporting date 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. | ||||
| Net reserve liabilities | Represent Athene's policyholder liability obligations net of reinsurance and used to analyze the costs of liabilities. Net reserve liabilities include Athene’s (a) interest sensitive contract liabilities, (b) future policy benefits, (c) net market risk benefits, (d) long-term repurchase obligations, (e) dividends payable to policyholders and (f) other policy claims and benefits, offset by reinsurance recoverable, excluding policy loans ceded. Net reserve liabilities include Athene’s economic ownership of ACRA reserve liabilities but do not include the reserve liabilities associated with the noncontrolling interest. 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, Athene has no net economic exposure to such liabilities, assuming its reinsurance counterparties perform under the agreements. Net reserve liabilities include the underlying liabilities assumed through modco reinsurance agreements in order to match the liabilities with the expenses incurred. | ||||
| 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. |
||||
8
| 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. |
||||
| NYC UBT | New York City Unincorporated Business Tax | ||||
| Other operating expenses within the Principal Investing segment | Expenses incurred in the normal course of business and includes allocations of non-compensation expenses related to managing the business. | ||||
| Other operating expenses within the Retirement Services segment | Expenses incurred in the normal course of business inclusive of compensation and non-compensation expenses. | ||||
| 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. | ||||
| 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 | Assets under management of certain vehicles with an indefinite duration, which assets may only be withdrawn under certain conditions or subject to certain limitations, including satisfying required hold periods or percentage limits on the amounts that may be redeemed over a particular period. The investment management, advisory or other service agreements with our perpetual capital vehicles may be terminated under certain circumstances. |
||||
| Principal Investing Income, or PII | Component of 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, including certain realizations received in the form of equity, (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. | ||||
| Principal investing compensation | Realized performance compensation, distributions related to investment income and dividends, and includes allocations of certain compensation expenses related to managing the business. | ||||
| Policy loan | A loan to a policyholder under the terms of, and which is secured by, a policyholder’s policy. | ||||
| 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 a fund in a portfolio investment, reduced for any return of capital distributed to date on such portfolio investment | ||||
| 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 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 received on business managed for others, primarily the ADIP portion of Athene’s business ceded to ACRA, 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 Athene’s 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 | ||||
| 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. RBC | The CAL RBC ratio for AADE, Athene’s parent U.S. insurance company | ||||
| 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. | ||||
| 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 June 30, 2023 |
As of December 31, 2022 |
|||||||||
| 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 June 30, 2023 |
As of December 31, 2022 |
|||||||||
| Liabilities, Redeemable non-controlling interests and Equity | |||||||||||
| Liabilities | |||||||||||
| Asset Management | |||||||||||
| Accounts payable, accrued expenses, and other liabilities | $ | $ | |||||||||
| Due to related parties | |||||||||||
| Debt | |||||||||||
| Liabilities of consolidated variable interest entities | |||||||||||
| Notes payable | |||||||||||
| Other liabilities | |||||||||||
| Retirement Services | |||||||||||
| Interest sensitive contract liabilities | |||||||||||
| Future policy benefits | |||||||||||
| Market risk benefits | |||||||||||
| Debt | |||||||||||
| Payables for collateral on derivatives and securities to repurchase | |||||||||||
| Other liabilities | |||||||||||
| Liabilities of consolidated variable interest entities | |||||||||||
| Other liabilities | |||||||||||
| Total Liabilities |
|
|
|||||||||
Commitments and Contingencies (note 18) |
|||||||||||
| Redeemable non-controlling interests | |||||||||||
| Redeemable non-controlling interests | |||||||||||
| Equity | |||||||||||
Common Stock, $ |
|||||||||||
| 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, Redeemable non-controlling interests 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 June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (In millions, except per share data) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Asset Management | |||||||||||||||||||||||
| Management fees | $ | $ | $ | $ | |||||||||||||||||||
| Advisory and transaction fees, net | |||||||||||||||||||||||
| Investment income (loss) | ( |
||||||||||||||||||||||
| 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 | |||||||||||||||||||||||
| Market risk benefits remeasurement (gains) losses | ( |
( |
( |
||||||||||||||||||||
| 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 (losses) from investment activities | |||||||||||||||||||||||
| Net gains (losses) 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. 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 (LOSS) (UNAUDITED)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Net income (loss) | $ | $ | ( |
$ | $ | ( |
||||||||||||||||||||
| Other comprehensive income (loss), before tax | ||||||||||||||||||||||||||
| Unrealized investment gains (losses) on available-for-sale securities | ( |
( |
( |
|||||||||||||||||||||||
| Unrealized gains (losses) on hedging instruments | ( |
( |
( |
|||||||||||||||||||||||
| Remeasurement gains (losses) on future policy benefits related to discount rate | ||||||||||||||||||||||||||
| Remeasurement gains (losses) on market risk benefits related to credit risk | ( |
|||||||||||||||||||||||||
| 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 and six months ended June 30, 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 (Deficit) |
Non-Controlling Interests |
Total Equity | ||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2022 |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ | ( |
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||||
| 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 | ( |
— | — | ( |
— | — | ( |
— | ( |
||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( |
— | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( |
( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 |
|
$ |
|
$ |
|
$ |
|
$ | ( |
$ | ( |
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||||
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) | — | — | — | — | ( |
— | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( |
( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 |
$ |
|
$ |
|
$ |
|
$ |
|
$ | ( |
$ | ( |
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||
| (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
16
APOLLO GLOBAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
For the three and six months ended June 30, 2023 |
|||||||||||||||||||||||||||||||||||||||||
| Apollo Global Management, Inc. Stockholders | |||||||||||||||||||||||||||||||||||||||||
| (In millions) | Common Stock | Additional Paid in Capital |
Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Loss |
Total Apollo Global Management, Inc. Stockholders’ Equity (Deficit) |
Non-Controlling
Interests
|
Total Equity |
||||||||||||||||||||||||||||||||||
| Balance at April 1, 2023 |
|
$ |
|
$ | ( |
$ | ( |
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||
| Other changes in equity of non-controlling interests | — | — | — | — | — | ( |
( |
||||||||||||||||||||||||||||||||||
| 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 | ( |
( |
— | — | ( |
— | ( |
||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | ( |
( |
( |
|||||||||||||||||||||||||||||||||||
Balance at June 30, 2023 |
|
$ |
|
$ |
|
$ | ( |
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||
Balance at January 1, 2023 |
|
$ |
|
$ | ( |
$ | ( |
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||
| Other changes in equity of non-controlling interests | — | — | — | — | — | ( |
( |
||||||||||||||||||||||||||||||||||
| 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 | ( |
( |
— | — | ( |
— | ( |
||||||||||||||||||||||||||||||||||
| Stock option exercises | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | ||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2023 |
|
$ |
|
$ |
|
$ | ( |
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||
| (Concluded) | |||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements. | |||||||||||||||||||||||||||||||||||||||||
17
APOLLO GLOBAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Six months ended June 30, | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net Income (Loss) | $ | $ | ( |
||||||||
| Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (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 consolidation | ( |
( |
|||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Purchases of investments by Funds and VIEs | ( |
( |
|||||||||
| Proceeds from sale of investments by Funds and VIEs | |||||||||||
| Interest sensitive contract liabilities | ( |
||||||||||
| Future policy benefits, market risk benefits and reinsurance recoverable | |||||||||||
| Other assets and liabilities, net | ( |
||||||||||
| Net cash provided by (used in) operating activities | $ | $ | ( |
||||||||
| Cash Flows from Investing Activities | |||||||||||
| Purchases of investments and contributions to equity method investments | $ | ( |
$ | ( |
|||||||
| Purchases of available-for-sale securities | ( |
( |
|||||||||
| Purchases of mortgage loans | ( |
( |
|||||||||
| Purchases of investment funds | ( |
( |
|||||||||
| Purchases of U.S. Treasury securities | ( |
( |
|||||||||
| Purchases of derivatives instruments and other investments | ( |
( |
|||||||||
| Sales, maturities and repayments of investments and distributions from equity method investments | |||||||||||
| Cash acquired through merger | |||||||||||
| Other investing activities, net | |||||||||||
| Net cash used in investing activities | $ | ( |
$ | ( |
|||||||
| Cash Flows from Financing Activities | |||||||||||
| Issuance of debt | $ | $ | |||||||||
| Repayment of debt | ( |
( |
|||||||||
| Repurchase of common stock | ( |
( |
|||||||||
| Common stock dividends | ( |
( |
|||||||||
| Distributions paid to non-controlling interests | ( |
( |
|||||||||
| Contributions from non-controlling interests | |||||||||||
| Distributions to redeemable non-controlling interests | ( |
( |
|||||||||
| 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 | ( |
||||||||||
| Other financing activities, net | ( |
( |
|||||||||
| Net cash provided by financing activities | $ | $ | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( |
||||||||||
| (Continued) | |||||||||||
18
APOLLO GLOBAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Six months ended June 30, | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Net Increase in Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, and Cash and Cash Equivalents Held at Consolidated Variable Interest Entities | |||||||||||
| Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, and Cash and Cash Equivalents Held at Consolidated Variable Interest Entities, Beginning of Period | |||||||||||
| Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, and Cash and Cash Equivalents Held at Consolidated Variable Interest Entities, End of Period | $ | $ | |||||||||
| Supplemental Disclosure of Cash Flow Information | |||||||||||
| Cash paid for taxes | $ | $ | |||||||||
| Cash paid for interest | |||||||||||
| Non-Cash Investing Activities | |||||||||||
| Asset Management and Other | |||||||||||
| Distributions from principal investments | |||||||||||
| Acquisition of goodwill and intangibles | |||||||||||
| Retirement Services | |||||||||||
| Investments received from settlements on reinsurance agreements | |||||||||||
| Investments received from pension group annuity premiums | |||||||||||
| Assets contributed to consolidated VIEs | |||||||||||
| Non-Cash Financing Activities | |||||||||||
| Asset Management and Other | |||||||||||
| Capital increases related to equity-based compensation | |||||||||||
| Retirement Services | |||||||||||
| Deposits on investment-type policies and contracts through reinsurance agreements | |||||||||||
| Withdrawals on investment-type policies and contracts through reinsurance agreements | |||||||||||
| Supplemental Disclosure of Cash Flow Information of Consolidated VIEs | |||||||||||
| Cash Flows from Operating Activities | |||||||||||
Purchases of investments - Asset Management
|
( |
( |
|||||||||
Proceeds from sale of investments - Asset Management
|
|||||||||||
| Cash Flows from Investing Activities | |||||||||||
Purchases of investments - Retirement Services
|
( |
( |
|||||||||
Proceeds from sale of investments - Retirement Services
|
|||||||||||
| Purchase of U.S. Treasury Securities | ( |
||||||||||
| Proceeds from maturities of U.S. Treasury Securities | |||||||||||
| Cash Flows from Financing Activities | |||||||||||
| Issuance of debt | |||||||||||
| Principal repayment of debt | ( |
( |
|||||||||
| Distributions paid to non-controlling interests | ( |
( |
|||||||||
| Contributions from non-controlling interests | |||||||||||
| Distributions to redeemable non-controlling interests | ( |
( |
|||||||||
| (Continued) | |||||||||||
19
APOLLO GLOBAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Six months ended June 30, | |||||||||||
| (In millions) | 2023 | 2022 | |||||||||
| Changes in Consolidation | |||||||||||
| Investments, at fair value | ( |
( |
|||||||||
| Other assets | ( |
( |
|||||||||
| Debt, at fair value | |||||||||||
| Notes payable | ( |
||||||||||
| Other liabilities | ( |
||||||||||
| Non-controlling interest | |||||||||||
| Equity | |||||||||||
Reconciliation of Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, and 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 and cash equivalents held at consolidated variable interest entities | |||||||||||
| Total Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, and Cash and Cash Equivalents Held at Consolidated Variable Interest Entities | $ | $ | |||||||||
| (Concluded) | |||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements. | |||||||||||
20
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 high-growth, global alternative asset manager and a retirement services provider. Its asset management business focuses on three investing strategies: yield, hybrid and equity. Through its asset management business, Apollo raises, invests and manages funds, accounts and other vehicles, on behalf of some of the world’s most prominent pension, endowment and sovereign wealth funds and insurance companies, as well as other institutional and individual investors. Apollo’s retirement services business is conducted by Athene, a leading financial services company that specializes in issuing, reinsuring and acquiring retirement savings products for the increasing number of individuals and institutions seeking to fund retirement needs.
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 4 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.
Griffin Capital Acquisitions
On March 1, 2022, the company completed the acquisition of Griffin Capital’s U.S. wealth distribution business. On May 3, 2022, the Company completed the acquisition of the U.S. asset management business of Griffin Capital in exchange for closing consideration of $213 million and contingent consideration of $64 million, substantially all of which was settled in shares of AGM common stock, per the transaction agreement signed December 2, 2021. As a result of the final close, the Griffin Institutional Access Real Estate Fund and the Griffin Institutional Access Credit Fund are advised by Apollo and have been renamed the Apollo Diversified Real Estate Fund and Apollo Diversified Credit Fund, respectively.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. These condensed consolidated financial statements should be read in conjunction with the annual financial statements included in the 2022 Annual Report. 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
21
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
financial statements of the Company. The condensed 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, 2022.
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 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
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, which includes AAM and its subsidiaries, including management companies and general partners of funds that the Company manages, and AHL and its subsidiaries
•funds, including entities that have attributes of an investment company
•SPACs
•CLOs
Variable Interest Entities
All entities are first considered under the VIE model. VIEs are entities that 1) do not have sufficient equity at risk to finance their activities without additional subordinated financial support or 2) have equity investors at risk 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 (“primary beneficiary power”) and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant (“significant variable interest”). The Company performs the VIE and primary beneficiary assessment at inception of its involvement with a VIE and on an ongoing basis if facts and circumstances change.
To assess whether the Company has the primary beneficiary power under the VIE consolidation model, 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 have control over servicing, liquidation rights or the unilateral right to remove the decision-makers. To assess whether the Company has a significant variable interest, the Company considers all its economic interests that are considered variable interests in the entity, including interests held through related parties. This assessment requires judgment in considering whether those interests are significant.
22
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 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 7 and 17.
Voting Interest Entities
Entities that are not determined to be VIEs are generally considered 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.
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 (loss) includes the net income (loss) 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.
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, 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 June 30, 2023. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments, including money market funds and U.S. Treasury securities, with original maturities of three months or less when purchased to be cash equivalents. 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 and cash equivalents represent balances that are restricted as to withdrawal or usage.
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. Restricted cash also includes cash deposited at a bank that is pledged as collateral in connection with leased premises.
Restricted cash and cash equivalents also consists of money market funds and U.S. Treasury bills with original maturities of three months or less, that were purchased with funds raised through the respective IPOs of APSG II and Acropolis Infrastructure Acquisition Corp. (“Acropolis”), both SPACs sponsored by Apollo. The restricted cash and cash equivalents may
23
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 (loss), 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-U.S. 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.
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 (loss) 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.
Reverse Repurchase Agreements and Repurchase Agreements
A reverse repurchase agreement is a transaction in which the Company purchases financial instruments from a seller and simultaneously enters into an agreement to resell the same or substantially the same financial instruments to the seller at a fixed and determinable price at a future date. A repurchase agreement is a transaction in which the Company sells financial instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial instruments from the buyer at a fixed and determinable price at a future date.
Although reverse repurchase and repurchase agreements generally involve the legal transfer of ownership of financial instruments, they are accounted for as financing arrangements because they require the financial instruments to be resold or repurchased before or at the maturity of the agreement. As a result, the collateral received under reverse repurchase agreements are not recognized and the collateral pledged under repurchase agreements are not derecognized in the condensed consolidated statements of financial condition.
Within asset management, reverse repurchase and repurchase agreements generally sit within consolidated VIEs and as such, those reverse repurchase and repurchase agreements are reflected as investments and other liabilities, respectively, within the consolidated VIE section of the statements of financial condition. Additionally, the income (loss) related to those reverse repurchase and repurchase agreements from consolidated VIEs are included in Net gains (losses) from investment activities of consolidated variable interest entities on the condensed consolidated statements of operations. Reverse repurchase agreements within asset management are generally accounted for by electing the fair value option. For retirement services, the receivable under the reverse repurchase agreement is recorded as investment for the principal amount loaned under the agreement and the payable under a repurchase agreement is recognized as payables for collateral on derivatives and securities to repurchase on the condensed consolidated statements of financial condition. Earnings from reverse repurchase agreements are included in net investment income for retirement services on the condensed consolidated statements of operations.
24
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 and reverse repurchase agreements. 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
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.
25
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 consideration transferred for 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.
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 awards granted to employees and non-employees that are 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.
26
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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.
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 the Company operate as partnerships for U.S. income tax purposes and are subject to NYC UBT. Certain non-U.S. entities are also subject to non-U.S. corporate income taxes. 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 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 is not considered more likely than not to be sustained, then no benefits of the position are recognized. The Company’s tax positions are reviewed and evaluated quarterly to determine whether the Company has uncertain tax positions that require financial statement recognition.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amount of assets and liabilities and their respective tax bases using currently enacted tax rates. 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.
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Significant judgment and estimates are required in determining whether valuation allowances should be established as well as the amount of such allowances. When making such determination, consideration is given to, among other things, the following:
•whether sufficient taxable income exists within the allowed carryback or carryforward periods;
•whether future reversals of existing taxable temporary differences will occur, including any tax planning strategies that could be used;
•the nature or character (e.g., ordinary vs. capital) of the deferred tax assets and liabilities; and
•whether future taxable income exclusive of reversing temporary differences and carryforwards exists.
Recently Issued Accounting Pronouncements
Fair Value Measurement — Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03)
In June 2022, the Financial Accounting Standards Board (“FASB”) issued clarifying guidance that a restriction which is a characteristic of the holding entity rather than a characteristic of the equity security itself should not be considered in its fair value measurement. As a result, the Company is required to measure the fair value of equity securities subject to contractual restrictions attributable to the holding entity on the basis of the market price of the same equity security without those contractual restrictions. Companies are not permitted to recognize a contractual sale restriction attributable to the holding entity as a separate unit of account. The guidance also requires disclosures for these equity securities.
The new guidance is mandatorily effective for the Company by January 1, 2024 with early adoption permitted. The Company will apply the guidance on a prospective basis as an adjustment to current-period earnings with the adoption impact disclosed in the period of adoption.
The Company is currently evaluating the new guidance and its impact on the condensed consolidated financial statements.
Investments– Equity Method and Joint Ventures (ASU 2023-02)
In March 2023, the FASB issued guidance in ASU 2023-02 to introduce the option of applying the proportional amortization method (“PAM”) to account for investments made primarily for the purpose of receiving income tax credits or other income tax benefits when certain requirements are met. Currently, PAM only applies to low-income housing tax credit (“LIHTC”) investments. The guidance becomes mandatorily effective for the Company on January 1, 2024, but early adoption is permitted.
The Company is currently evaluating the new guidance and its impact on the condensed consolidated financial statements.
Recently Adopted Accounting Pronouncements
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 and are commonly referred to as long-duration targeted improvements (“LDTI”).
•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.
•The update simplifies the amortization of DAC 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
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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.
The Company adopted these updates on January 1, 2023 and, for all provisions of the update, applied a retrospective transition approach using a transition date of January 1, 2022, the date of the Mergers. At the acquisition date, VOBA balances were established as the difference between the fair value of the liabilities and the reserves established as of this date. Upon transition to LDTI, the liability for future policy benefits and contractual features that meet the criteria for market risk benefits were adjusted to conform to LDTI, with an offsetting adjustment made to positive or negative VOBA. No adjustments were recorded to accumulated other comprehensive income (loss) (“AOCI”) or retained earnings. See note 3 for the effects of LDTI adoption on the 2022 condensed consolidated financial statements.
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 was adopted by the Company on January 1, 2023 and applied prospectively. There was no financial statement impact upon adoption.
Reference Rate Reform (Topic 848) — Deferral of the Sunset Date of Topic 848 (ASU 2022-06, ASU 2021-01, ASU 2020-04)
The Company adopted ASU 2020-04 and ASU 2021-01 and elected to apply certain of the practical expedients related to contract modifications, hedge accounting relationships, and derivative modifications pertaining to discounting, margining, or contract price alignment. The main purpose of the practical expedients is to ease the administrative burden of accounting for contracts impacted by reference rate reform, and these elections did not have, and are not expected to have, a material impact on the consolidated financial statements. ASU 2022-06 amended and deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which the Company will no longer be permitted to apply the expedients provided in Topic 848. The Company will continue to evaluate the impact of reference rate reform on contract modifications and hedging relationships.
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
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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.
Deferred revenue is reversed and recognized as revenue over the period that the agreed upon services are performed. There was $170 million of revenue recognized during the six months ended June 30, 2023 that was previously deferred as of January 1, 2023.
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 may be capitalized as a cost to acquire a customer contract and amortized over the life of the customer contract. Capitalized placement fees are recorded within other assets in the condensed consolidated statements of financial condition, while amortization is recorded within general, administrative and other in the condensed consolidated statements of operations. In certain instances, the placement fees are paid over a period of time. Based on the management agreements with the funds, Apollo considers placement fees and organizational costs paid in determining if cash has been received in excess of the management fees earned. Placement fees and organizational costs are normally the obligation of Apollo but can be paid for by the funds. When these costs are paid by the fund, the resulting obligations are included within deferred revenue. The deferred revenue balance will also be reduced during future periods when management fees are earned but not paid.
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.
Performance allocations are accounted for under guidance applicable to equity method investments, and therefore not within the scope of the revenue guidance. Apollo recognizes performance allocations within investment income along with the related
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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 provided 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 applicable broken deal costs. Advisory and transaction fees are reduced by 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.
Investment Income
Investment income is comprised of performance allocations and principal investment income.
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.
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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
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 fund’s 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 performance-based incentive arrangements 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. These arrangements enable 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.
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Significant Accounting Policies – Retirement Services
Investments
Fixed Maturity Securities
Fixed maturity securities includes bonds, collateralized loan obligations (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, exclusive of allowances for expected credit losses, generally reflected in 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.
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. Athene 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 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 Investments
Athene purchases certain structured securities, primarily RMBS, 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 its 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
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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.
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 is 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 and other uncollateralized loans. Athene elected the fair value option on these loans. Interest income is accrued on the principal amount of the loan based on its contractual interest rate. Interest on loans is accrued until it is probable it will not be received or the loan is 90 days past due. Interest income and prepayment and other fees are reported in net investment income on the condensed consolidated statements of operations. Changes in fair value are reported in investment related gains (losses) on the condensed consolidated statements of operations.
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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 the provision for credit losses within investment related gains (losses) on the condensed consolidated statements of operations. All changes in the allowance for expected credit losses are recorded through the provision for credit losses 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.
Upon determining that all or a portion of the amortized cost of an asset is uncollectible, which is generally when all efforts for collection are exhausted, the amortized cost is written off against the existing allowance. Any write off in excess of the existing allowance is recorded through the provision for credit losses within investment related gains (losses) 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.
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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 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 purchases 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 equity 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.
36
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. Athene generally has the right of offset on reinsurance transactions, but has elected to present reinsurance settlement amounts due to and from Athene on a gross basis.
For assets and liabilities ceded under reinsurance agreements, Athene generally applies the same measurement guidance for Athene’s directly issued or assumed contracts. Ceded amounts are recorded within reinsurance recoverable on the condensed consolidated statements of financial condition. For reinsurance of in-force contracts that pass risk transfer, the issue year used for the purpose of measuring the reinsurance recoverable is dependent on the effective date of the reinsurance agreement, which may differ from the issue year for the direct or assumed contract. The issue year informs the locked-in discount rate used for the purposes of interest accretion. This may result in different discount rates used for the direct or assumed reserves and ceded reserves when reinsuring an in-force block of insurance contracts. For flow reinsurance of insurance contracts that pass risk transfer, the contracts have the same cash flow assumptions as the direct or assumed contracts when the terms are consistent between those respective contracts and the ceded reinsurance agreement. When Athene recognizes an immediate loss due to the present value of future benefits and expenses exceeding the present value of future gross premiums, a gain is recognized on the corresponding reinsurance recoverable to the extent it does not result in gain recognition at treaty inception. Likewise, where the direct or assumed reserve has been floored to zero, the corresponding reinsurance recoverable will be consistently set to zero. See “Future Policy Benefits” below for further information.
Accounting for reinsurance requires the use of assumptions, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. Athene attempts to minimize its counterparty credit risk through the structuring of the terms of its reinsurance agreements, including the use of trusts, and monitors credit ratings of counterparties for signs of declining credit quality. When a ceding company does not report information on a timely basis, Athene records accruals based on the best available information at the time, which includes the reinsurance agreement terms and historical experience. Athene periodically compares actual and anticipated experience to the assumptions used to establish reinsurance assets and liabilities.
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 the direct or 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 the direct or assumed and ceded reserves and benefits are presented net in future policy and other policy benefits on the condensed consolidated statements of operations, except for changes related to the discount rate which are presented net in OCI on the condensed consolidated statements of comprehensive income (loss). For market risk benefits, the change in the direct or assumed and ceded reserves are presented net in market risk benefits remeasurement (gain) loss on the condensed consolidated statements of operations, except for changes related to instrument-specific credit risk on direct and assumed contracts which are presented net in OCI on the condensed consolidated statements of comprehensive income (loss).
For the reinsurance of existing in-force blocks that transfer significant insurance risk, the difference between the assets received or paid and the liabilities assumed or ceded represents the net cost of reinsurance at the inception of the reinsurance agreement. The net cost of reinsurance is amortized on a basis consistent with the methodologies and assumptions used to amortize DAC and deferred sales inducements (“DSI”).
37
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 the renewal of existing, insurance or investment contracts are deferred. 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. These costs are not capitalized until they are incurred.
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 grouped into cohorts based on issue year and contract type and amortized on a constant level basis over the expected term of the related contracts. The cohorts and assumptions used for the amortization of deferred costs are consistent with those used in estimating the related liabilities for these contracts. The constant level basis generally is the initial premium or deposit and is projected based on assumptions related to policyholder behavior, including lapses and mortality, over the expected term of the contracts. Each reporting period, Athene replaces expected experience with actual experience to determine the related amortization expense. Changes to projected experience are recognized in amortization expense prospectively over the remaining contract term. Amortization of DAC and DSI is included in amortization of deferred acquisition costs, deferred sales inducements and value of business acquired on the condensed consolidated statements of operations.
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 as of the business combination date. VOBA is the difference between the fair value of the liabilities and the reserves. VOBA can be either positive or negative and is amortized in relation to respective policyholder liabilities. Significant assumptions that impact VOBA amortization are consistent with those that impact the measurement of policyholder liabilities. Athene performs periodic tests to determine if positive VOBA remains recoverable. If Athene determines that positive VOBA is not recoverable, Athene records a cumulative charge to the current period. 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.
Interest Sensitive Contract Liabilities
Universal life-type policies and investment contracts include traditional deferred annuities, indexed annuities consisting of fixed indexed and index-linked variable annuities in the accumulation phase, funding agreements, immediate annuities without significant mortality risk (which include pension group annuities without life contingencies), universal life insurance, and other investment contracts inclusive of assumed endowments without significant mortality risk. Athene carries liabilities for traditional deferred annuities, indexed annuities, funding agreements and universal life insurance 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. Certain of Athene’s universal life-type policies and investment contracts are offered with additional contract features that meet the definition of a market risk benefit. See “Market Risk Benefits” below for further information.
38
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Future Policy Benefits
Athene issues contracts classified as long-duration, which include 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 as the estimated present value of benefits we expect to pay to or on behalf of the policyholder and related expenses less the present value of the net premiums to be collected, referred to as the net premium ratio. The contracts are grouped into cohorts based on issue year and contract type, with an exception for pension group annuities, which are generally assessed at the group annuity contract level. Contracts with different issuance years are not combined. Contracts acquired in a business combination are grouped into a single cohort by contract type, except for pension group annuities, which follow the group annuity contract level.
Liabilities for nonparticipating long-duration contracts are established using accepted actuarial valuation methods which require the use of assumptions related to discount rate, expenses, longevity, mortality, morbidity, persistency and other policyholder behavior. Athene bases certain key assumptions, such as longevity, mortality and morbidity, on industry standard data adjusted to align with actual company experience, if needed. Athene has elected to use expense assumptions that are locked in at issuance for each cohort. All other cash flow assumptions are established at contract issuance and reviewed annually or more frequently if actual experience suggests a revision is necessary. The effect of changes in cash flow assumptions impacting the net premium ratio are recorded as remeasurement changes in the period in which they are made. As cash flow assumptions are reviewed at least annually, there is no provision for adverse deviation included within the liability.
Actual experience is recognized in the period in which the experience arises. Actual experience is then incorporated into the net premium ratio for all products and cohorts on a quarterly basis. When the net premium ratio is revised, whether to incorporate actual experience each reporting period or for the review of cash flow assumptions, the liability is recalculated as of the beginning of the period, discounted at the original contract issuance discount rate, and compared with the carrying amount of the liability as of the same date to determine the current period change. The current period change in the liability is recognized as remeasurement gain or loss.
To the extent the present value of future benefits and expenses exceeds the present value of gross premiums, Athene will cap the net premium ratio at one hundred percent by increasing the corresponding liability and recognizing an immediate loss through the condensed consolidated statements of operations. The liability is never recorded at an amount less than zero for the cohort.
The liability for nonparticipating long-duration contracts is discounted using an upper-medium grade fixed income instrument yield aligned to the duration of the liability. In determining reference portfolio of instruments, Athene has used a single A equivalent level rate and maximized the use of observable data to the extent possible for the duration of its liabilities. The discount rate is required to be updated at the end of each reporting period for the remeasurement of the liability but is locked-in for each cohort for the purpose of interest accretion expense.
Changes in the value of the liability for nonparticipating long-duration contracts due to changes in the discount rate are recognized as a component of OCI on the condensed consolidated statements of comprehensive income (loss). The change in the liability for the remeasurement gain or loss and all other changes in the liability is recorded in future policy and other policy benefits on the condensed consolidated statements of operations.
Future policy benefits include liabilities for no-lapse guarantees on universal life insurance and fixed indexed universal life insurance that do not meet the criteria to be classified as and accounted for as a market risk benefit. Athene establishes future policy benefits for no-lapse guarantees by estimating the expected value of death benefits paid after policyholder account balances have been exhausted. Athene recognizes these benefits proportionally over the life of the contracts based on total actual and expected assessments. The methods Athene uses to estimate the liabilities have assumptions about policyholder
39
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
behavior, mortality, expected yield on investments supporting the liability and market conditions affecting policyholder account balance growth.
For the liabilities associated with no-lapse guarantees, each reporting period Athene updates expected excess benefits and assessments with actual excess benefits and assessments and adjusts the liability balances due to the OCI effects of unrealized investment gains and losses on AFS securities. Athene also periodically revises the key assumptions used in the calculation of the liabilities that result 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 the liabilities associated with no-lapse guarantees, 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.
Market Risk Benefits
Market risk benefits represent contracts or contract features that both provide protection to the contract holder from, and expose the insurance entity to, other-than-nominal capital market risk. Athene issues and reinsures deferred annuity contracts which contain guaranteed lifetime withdrawal benefits (“GLWB”) and guaranteed minimum death benefit (“GMDB”) riders that meet the criteria for, and are classified as, market risk benefits.
Market risk benefits are measured at fair value at the contract level and may be recorded as a liability or an asset, which are recorded on the condensed consolidated statements of financial condition in market risk benefits or other assets, respectively. Multiple market risk benefits on a contract are treated as a single, compound market risk benefit. At contract inception, Athene assesses the fees and assessments that are collectible from the policyholder and allocate them to the extent they are attributable to the market risk benefit. These attributed fees are used in the valuation of the market risk benefits and are never negative or exceed total explicit fees collectible from the policyholder. If the fees are sufficient to cover the projected benefits, a non-option based valuation model is used. If the fees are insufficient to cover the projected benefits, an option-based valuation model is used to compute the market risk benefit liability at contract inception, with an equal and offsetting adjustment recognized in interest sensitive contract liabilities.
Changes in fair value of market risk benefits are recorded in market risk benefits remeasurement (gain) loss on the condensed consolidated statements of operations, excluding portions attributed to changes in instrument-specific credit risk, which are recorded in OCI on the condensed consolidated statements of comprehensive income (loss). Market risk benefits are not reduced for market risk benefits ceded under reinsurance agreements. Ceded market risk benefits are measured at fair value and recorded within reinsurance recoverable on the condensed consolidated statements of financial condition.
Upon annuitization of the contract or the extinguishment of the account balance, the market risk benefit, related annuity contract and unamortized deferred costs are derecognized, including amounts within AOCI. A payout annuity is then established for GLWBs.
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.
40
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
When the net premium ratio for the corresponding future policy benefit is updated for actual experience and changes to projected cash flow assumptions, the deferred profit liability is retrospectively recalculated from the contract issuance date through the beginning of the current reporting period. The revised deferred profit liability is compared to the beginning of the period carrying amount to determine the change to be recognized as a remeasurement gain or loss within future policy and other policy benefits on the condensed consolidated statements of operations. Unlike the related future policy benefit, the deferred profit liability will not be remeasured for changes in discount rates each reporting period. Negative VOBA balances associated with payout contracts involving life contingencies, including pension group annuities, are accounted for in a manner similar to the deferred profit liability.
All insurance-related revenue is reported net of reinsurance ceded.
3. Adoption of Accounting Pronouncement
The following table summarizes future policy benefits and changes to the liability:
| (In millions) | Traditional deferred annuities | Indexed annuities | Payout annuities |
Reconciling items1
|
Total | ||||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Change in discount rate assumptions | |||||||||||||||||||||||||||||
| Adjustment for removal of balances related to market risk benefits | ( |
( |
( |
||||||||||||||||||||||||||
Adjustment for offsetting balance in negative VOBA2
|
( |
( |
|||||||||||||||||||||||||||
| Adjusted balance as of January 1, 2022 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
1 Reconciling items primarily include negative VOBA associated with our liability for future policy benefits, as well as reserves for our immaterial lines of business including term and whole life, accident and health and disability, as well as other insurance benefit reserves for our no-lapse guarantees with universal life contracts, all of which are fully ceded.
| |||||||||||||||||||||||||||||
2 Uneliminated adjustments were recorded to positive VOBA within deferred acquisition costs, deferred sales inducements and value of business acquired on the condensed consolidated statements of financial condition.
| |||||||||||||||||||||||||||||
Adjustments to the deferred profit liability were not required as these balances were set to zero on the Merger Date. Since the liability for future policy benefits was measured at fair value on the Merger Date, there were no instances upon transition in which net premiums exceeded gross premiums which would have required an immediate loss to be recognized in net income.
The following table presents the net liability position of market risk benefits:
| (In millions) | Traditional deferred annuities | Indexed annuities | Total | ||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | ||||||||||||||
Adjustment for addition of existing balances1
|
|||||||||||||||||
Adjustment to positive VOBA due to fair value adjustment for market risk benefits2
|
( |
( |
|||||||||||||||
Adjustment to negative VOBA due to fair value adjustment for market risk benefits3
|
( |
( |
|||||||||||||||
| Adjusted balance as of January 1, 2022 | $ | $ | $ | ||||||||||||||
1 Previously recorded within future policy benefits on the condensed consolidated statements of financial condition.
| |||||||||||||||||
2 Previously recorded within deferred acquisition costs, deferred sales inducements and value of business acquired on the condensed consolidated statements of financial condition.
| |||||||||||||||||
3 Previously recorded within interest sensitive contract liabilities on the condensed consolidated statements of financial condition.
| |||||||||||||||||
41
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table represents market risk benefits by asset and liability positions:
| (In millions) |
Asset1
|
Liability | Net liability | ||||||||||||||
| Traditional deferred annuities | $ | $ | $ | ||||||||||||||
| Indexed annuities | |||||||||||||||||
| Adjusted balance as of January 1, 2022 | $ | $ | $ | ||||||||||||||
1 Included within other assets on the condensed consolidated statements of financial condition.
| |||||||||||||||||
The following table summarizes the change in deferred acquisition costs, deferred sales inducements and value of business acquired:
| (In millions) | VOBA | ||||
| Balance as of January 1, 2022 | $ | ||||
| Change in discount rate assumptions for future policy benefits | ( |
||||
| Fair value adjustment of market risk benefits | ( |
||||
| Adjusted balance as of January 1, 2022 | $ | ||||
The following represents the effects of LDTI adoption on the applicable financial statement lines of the Company’s consolidated statement of financial condition:
| December 31, 2022 | |||||||||||||||||
| (In millions) | Reported | Adoption | Adjusted | ||||||||||||||
| Assets | |||||||||||||||||
| Retirement Services | |||||||||||||||||
| Reinsurance recoverable | $ | $ | ( |
$ | |||||||||||||
| Deferred acquisition costs, deferred sales inducements and value of business acquired | ( |
||||||||||||||||
| Other assets | ( |
||||||||||||||||
| Total Assets | $ |
|
$ | ( |
$ |
|
|||||||||||
| Liabilities and Equity | |||||||||||||||||
| Liabilities | |||||||||||||||||
| Retirement Services | |||||||||||||||||
| Interest sensitive contract liabilities | $ | $ | ( |
$ | |||||||||||||
| Future policy benefits | ( |
||||||||||||||||
| Market risk benefits | |||||||||||||||||
| Total Liabilities |
|
( |
|
||||||||||||||
| Equity | |||||||||||||||||
| Retained earnings (accumulated deficit) | ( |
( |
|||||||||||||||
| Accumulated other comprehensive income (loss) | ( |
( |
|||||||||||||||
| Total Apollo Global Management, Inc. Stockholders’ Equity | |||||||||||||||||
| Non-controlling interests | |||||||||||||||||
| Total Equity |
|
|
|
||||||||||||||
| Total Liabilities, Redeemable non-controlling interests and Equity | $ |
|
$ | ( |
$ |
|
|||||||||||
42
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following represents the effects of LDTI adoption on the applicable financial statement lines of the Company’s condensed consolidated statements of operations:
| Three months ended March 31, 2022 | |||||||||||||||||
| (In millions, except per share data) | Reported | Adoption | Adjusted | ||||||||||||||
| Revenues | |||||||||||||||||
| Retirement Services | |||||||||||||||||
| Investment related gains (losses) | $ | ( |
$ | ( |
$ | ( |
|||||||||||
| Total Revenues | ( |
||||||||||||||||
| Expenses | |||||||||||||||||
| Retirement Services | |||||||||||||||||
| Interest sensitive contract benefits | ( |
( |
( |
||||||||||||||
| Future policy and other policy benefits | |||||||||||||||||
| Market risk benefits remeasurement (gains) losses | ( |
( |
|||||||||||||||
| Amortization of deferred acquisition costs, deferred sales inducements and value of business acquired | ( |
||||||||||||||||
| Policy and other operating expenses | |||||||||||||||||
| Total Expenses | ( |
||||||||||||||||
| 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. common stockholders | $ | ( |
$ | $ | ( |
||||||||||||
| Earnings (loss) per share | |||||||||||||||||
| Net income (loss) attributable to common stockholders - Basic and Diluted | $ | ( |
$ | $ | ( |
||||||||||||
| Six months ended June 30, 2022 | |||||||||||||||||
| (In millions, except per share data) | Reported | Adoption | Adjusted | ||||||||||||||
| Revenues | |||||||||||||||||
| Retirement Services | |||||||||||||||||
| Investment related gains (losses) | $ | ( |
$ | $ | ( |
||||||||||||
| Total Revenues | |||||||||||||||||
| Expenses | |||||||||||||||||
| Retirement Services | |||||||||||||||||
| Interest sensitive contract benefits | ( |
( |
( |
||||||||||||||
| Future policy and other policy benefits | |||||||||||||||||
| Market risk benefits remeasurement (gains) losses | ( |
( |
|||||||||||||||
| Amortization of deferred acquisition costs, deferred sales inducements and value of business acquired | ( |
||||||||||||||||
| Policy and other operating expenses | |||||||||||||||||
| Total Expenses | ( |
||||||||||||||||
| 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. common stockholders | $ | ( |
$ | $ | ( |
||||||||||||
| Earnings (loss) per share | |||||||||||||||||
| Net income (loss) attributable to common stockholders - Basic and Diluted | $ | ( |
$ | $ | ( |
||||||||||||
43
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Nine months ended September 30, 2022 | |||||||||||||||||
| (In millions, except per share data) | Reported | Adoption | Adjusted | ||||||||||||||
| Revenues | |||||||||||||||||
| Retirement Services | |||||||||||||||||
| Investment related gains (losses) | $ | ( |
$ | $ | ( |
||||||||||||
| Total Revenues | |||||||||||||||||
| Expenses | |||||||||||||||||
| Retirement Services | |||||||||||||||||
| Interest sensitive contract benefits | ( |
( |
( |
||||||||||||||
| Future policy and other policy benefits | |||||||||||||||||
| Market risk benefits remeasurement (gains) losses | ( |
( |
|||||||||||||||
| Amortization of deferred acquisition costs, deferred sales inducements and value of business acquired | ( |
||||||||||||||||
| Policy and other operating expenses | |||||||||||||||||
| Total Expenses | ( |
||||||||||||||||
| 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. common stockholders | $ | ( |
$ | $ | ( |
||||||||||||
| Earnings (loss) per share | |||||||||||||||||
| Net income (loss) attributable to common stockholders - Basic and Diluted | $ | ( |
$ | $ | ( |
||||||||||||
| Year ended December 31, 2022 | |||||||||||||||||
| (In millions, except per share data) | Reported | Adoption | Adjusted | ||||||||||||||
| Total Revenues | $ | $ | $ | ||||||||||||||
| Expenses | |||||||||||||||||
| Retirement Services | |||||||||||||||||
| Interest sensitive contract benefits | ( |
||||||||||||||||
| Future policy and other policy benefits | |||||||||||||||||
| Market risk benefits remeasurement (gains) losses | ( |
( |
|||||||||||||||
| Amortization of deferred acquisition costs, deferred sales inducements and value of business acquired | ( |
||||||||||||||||
| Policy and other operating expenses | |||||||||||||||||
| Total Expenses | ( |
||||||||||||||||
| 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. common stockholders | $ | ( |
$ | $ | ( |
||||||||||||
| Earnings (loss) per share | |||||||||||||||||
| Net income (loss) attributable to common stockholders - Basic and Diluted | $ | ( |
$ | $ | ( |
||||||||||||
44
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following represents the effects of LDTI adoption on the applicable financial statement lines of the Company’s condensed consolidated statements of comprehensive income (loss):
| Three months ended March 31, 2022 | |||||||||||||||||
| (In millions) | Reported | Adoption | Adjusted | ||||||||||||||
| Net income (loss) | $ | ( |
$ | $ | ( |
||||||||||||
| Other comprehensive income (loss), before tax | |||||||||||||||||
| Unrealized investment gains (losses) on available-for-sale securities | ( |
( |
( |
||||||||||||||
| Remeasurement gains (losses) on future policy benefits related to discount rate | |||||||||||||||||
| Remeasurement gains (losses) on market risk benefits related to credit risk | |||||||||||||||||
| 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. | $ | ( |
$ | $ | ( |
||||||||||||
| Six months ended June 30, 2022 | |||||||||||||||||
| (In millions) | Reported | Adoption | Adjusted | ||||||||||||||
| Net income (loss) | $ | ( |
$ | $ | ( |
||||||||||||
| Other comprehensive income (loss), before tax | |||||||||||||||||
| Unrealized investment gains (losses) on available-for-sale securities | ( |
( |
( |
||||||||||||||
| Remeasurement gains (losses) on future policy benefits related to discount rate | |||||||||||||||||
| Remeasurement gains (losses) on market risk benefits related to credit risk | |||||||||||||||||
| 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. | $ | ( |
$ | $ | ( |
||||||||||||
| Nine months ended September 30, 2022 | |||||||||||||||||
| (In millions) | Reported | Adoption | Adjusted | ||||||||||||||
| Net income (loss) | $ | ( |
$ | $ | ( |
||||||||||||
| Other comprehensive income (loss), before tax | |||||||||||||||||
| Unrealized investment gains (losses) on available-for-sale securities | ( |
( |
( |
||||||||||||||
| Remeasurement gains (losses) on future policy benefits related to discount rate | |||||||||||||||||
| Remeasurement gains (losses) on market risk benefits related to credit risk | |||||||||||||||||
| 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. | $ | ( |
$ | $ | ( |
||||||||||||
45
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Year ended December 31, 2022 | |||||||||||||||||
| (In millions) | Reported | Adoption | Adjusted | ||||||||||||||
| Net income (loss) | $ | ( |
$ | $ | ( |
||||||||||||
| Other comprehensive income (loss), before tax | |||||||||||||||||
| Unrealized investment gains (losses) on available-for-sale securities | ( |
( |
( |
||||||||||||||
| Remeasurement gains (losses) on future policy benefits related to discount rate | |||||||||||||||||
| Remeasurement gains (losses) on market risk benefits related to credit risk | |||||||||||||||||
| 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. | $ | ( |
$ | $ | ( |
||||||||||||
The Company made corresponding adjustments to the condensed consolidated statements of equity for the relevant periods to reflect the changes to net income (loss) and comprehensive income (loss), as presented above.
The following represents the effects of LDTI adoption on the applicable financial statement lines of the Company’s condensed consolidated statements of cash flows:
| Three months ended March 31, 2022 | |||||||||||||||||
| (In millions) | Reported | Adoption | Adjusted | ||||||||||||||
| Net income (loss) | $ | ( |
$ | $ | ( |
||||||||||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||||||||||||
| Net recognized (gains) losses on investments and derivatives | |||||||||||||||||
| Depreciation and amortization | ( |
||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Interest sensitive contract liabilities | ( |
( |
( |
||||||||||||||
| Future policy benefits, market risk benefits and reinsurance recoverable | ( |
( |
( |
||||||||||||||
| Other assets and liabilities, net | |||||||||||||||||
| Net cash used in operating activities | ( |
( |
|||||||||||||||
| Net cash provided by investing activities | |||||||||||||||||
| 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 equivalents, and cash and cash equivalents held at consolidated variable interest entities | |||||||||||||||||
| Cash and cash equivalents, restricted cash and cash equivalents, and cash and cash equivalents held at consolidated variable interest entities, Beginning of Period | |||||||||||||||||
| Cash and cash equivalents, restricted cash and cash equivalents, and cash and cash equivalents held at consolidated variable interest entities, End of Period | $ | $ | $ | ||||||||||||||
46
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Six months ended June 30, 2022 | |||||||||||||||||
| (In millions) | Reported | Adoption | Adjusted | ||||||||||||||
| Net income (loss) | $ | ( |
$ | $ | ( |
||||||||||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||||||||||||
| Depreciation and amortization | ( |
||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Interest sensitive contract liabilities | ( |
( |
( |
||||||||||||||
| Future policy benefits, market risk benefits and reinsurance recoverable | ( |
||||||||||||||||
| Other assets and liabilities, net | |||||||||||||||||
| Net cash used in operating activities | ( |
( |
|||||||||||||||
| Net cash used in investing activities | ( |
( |
|||||||||||||||
| 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 equivalents, and cash and cash equivalents held at consolidated variable interest entities | |||||||||||||||||
| Cash and cash equivalents, restricted cash and cash equivalents, and cash and cash equivalents held at consolidated variable interest entities, Beginning of Period | |||||||||||||||||
| Cash and cash equivalents, restricted cash and cash equivalents, and cash and cash equivalents held at consolidated variable interest entities, End of Period | $ | $ | $ | ||||||||||||||
| Nine months ended September 30, 2022 | |||||||||||||||||
| (In millions) | Reported | Adoption | Adjusted | ||||||||||||||
| Net income (loss) | $ | ( |
$ | $ | ( |
||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||||
| Net recognized (gains) losses on investments and derivatives | ( |
||||||||||||||||
| Depreciation and amortization | ( |
||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Interest sensitive contract liabilities | ( |
( |
( |
||||||||||||||
| Future policy benefits, market risk benefits and reinsurance recoverable | ( |
||||||||||||||||
| Other assets and liabilities, net | |||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| Net cash used in investing activities | ( |
( |
|||||||||||||||
| 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 equivalents, and cash and cash equivalents held at consolidated variable interest entities | |||||||||||||||||
| Cash and cash equivalents, restricted cash and cash equivalents, and cash and cash equivalents held at consolidated variable interest entities, Beginning of Period | |||||||||||||||||
| Cash and cash equivalents, restricted cash and cash equivalents, and cash and cash equivalents held at consolidated variable interest entities, End of Period | $ | $ | $ | ||||||||||||||
47
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Year ended December 31, 2022 | |||||||||||||||||
| (In millions) | Reported | Adoption | Adjusted | ||||||||||||||
| Net income (loss) | $ | ( |
$ | $ | ( |
||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | ( |
||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Interest sensitive contract liabilities | ( |
( |
( |
||||||||||||||
| Future policy benefits, market risk benefits and reinsurance recoverable | ( |
||||||||||||||||
| Other assets and liabilities | |||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| Net cash used in investing activities | ( |
( |
|||||||||||||||
| 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 equivalents, and cash and cash equivalents held at consolidated variable interest entities | |||||||||||||||||
| Cash and cash equivalents, restricted cash and cash equivalents, and cash and cash equivalents held at consolidated variable interest entities, Beginning of Period | |||||||||||||||||
| Cash and cash equivalents, restricted cash and cash equivalents, and cash and cash equivalents held at consolidated variable interest entities, End of Period | $ | $ | $ | ||||||||||||||
48
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. 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 1 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 1 was determined using the discounted distribution model approach.
| |||||
The Mergers were accounted for as a business combination. The consideration was allocated to Athene's assets acquired and liabilities assumed based on estimates of their fair values as of the Merger Date. The business combination was achieved in steps. The Company previously held its equity interests in the acquiree at fair value.
Goodwill of $4.1 billion was recorded based on the amount that the Athene equity value exceeded 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. Goodwill on the condensed consolidated statements of financial position includes the impacts of foreign currency translation.
The financial statements were not retrospectively adjusted for the changes to the provisional values of assets acquired and liabilities assumed that occurred in subsequent periods. Adjustments were recognized as information related to the preliminary fair value calculation was obtained. The effect on earnings of changes in depreciation, amortization, or other income effects, as a result of changes to the provisional amounts, were recorded in the same period as the financial statements, calculated as if the accounting had been completed at the Merger Date.
49
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the 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 | |||||
| Market risk 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 | $ | ||||
The Company finalized purchase accounting during the fourth quarter of 2022. During the year ended December 31, 2022, the Company recorded adjustments which decreased provisional goodwill by $108 million. The adjustments were comprised of $25 million for measurement period adjustments and $83 million to adjust the valuation of an investment. The measurement period adjustments were primarily related to decreases in interest sensitive contract liabilities and future policy benefits and the effects to the condensed consolidated statements of operations were immaterial to those periods.
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 8.
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 statements 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. Amortization of these assets is on a straight-line basis. | 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. Amortization of this asset is on a straight-line basis. | 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. These assets are not amortized. | ||||||||||||
50
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 $1,994 million and $1,747 million and net income (loss) of $(2,746 ) million and $(3,588 ) million are included in the condensed consolidated statement of operations for the three and six months ended June 30, 2022, respectively.
5. Investments
The following table outlines the Company’s investments:
| (In millions) | June 30, 2023 | December 31, 2022 | |||||||||
| 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 | |||||||||||
| Short-term investments | |||||||||||
| Other investments | |||||||||||
Total Investments, including related parties – 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 June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| 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 | $ | $ | $ | $ | |||||||||||||||||||
51
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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, 2023 |
$ | ||||
| Change in fair value of funds | |||||
| Fund distributions to the Company | ( |
||||
Performance allocations, June 30, 2023 |
$ | ||||
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.
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:
| June 30, 2023 | |||||||||||||||||||||||||||||
| (In millions) | Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||
| U.S. government and agencies | $ | $ | $ | $ | ( |
$ | |||||||||||||||||||||||
| U.S. state, municipal and political subdivisions | ( |
||||||||||||||||||||||||||||
| Foreign governments | ( |
( |
|||||||||||||||||||||||||||
| Corporate | ( |
( |
|||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||
| ABS | ( |
( |
|||||||||||||||||||||||||||
| CMBS | ( |
( |
|||||||||||||||||||||||||||
| RMBS | ( |
( |
|||||||||||||||||||||||||||
| Total AFS securities | ( |
( |
|||||||||||||||||||||||||||
| AFS securities – related parties | |||||||||||||||||||||||||||||
| Corporate | ( |
||||||||||||||||||||||||||||
| CLO | ( |
||||||||||||||||||||||||||||
| ABS | ( |
( |
|||||||||||||||||||||||||||
| Total AFS securities – related parties | ( |
( |
|||||||||||||||||||||||||||
| Total AFS securities, including related parties | $ | $ | ( |
$ | $ | ( |
$ | ||||||||||||||||||||||
52
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| December 31, 2022 | |||||||||||||||||||||||||||||
| (In millions) | Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||
| U.S. government and agencies | $ | $ | $ | $ | ( |
$ | |||||||||||||||||||||||
| U.S. state, municipal and political subdivisions | ( |
||||||||||||||||||||||||||||
| Foreign governments | ( |
( |
|||||||||||||||||||||||||||
| Corporate | ( |
( |
|||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||
| ABS | ( |
( |
|||||||||||||||||||||||||||
| CMBS | ( |
( |
|||||||||||||||||||||||||||
| RMBS | ( |
( |
|||||||||||||||||||||||||||
| Total AFS securities | ( |
( |
|||||||||||||||||||||||||||
| AFS securities – related parties | |||||||||||||||||||||||||||||
| Corporate | ( |
||||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||
| ABS | ( |
||||||||||||||||||||||||||||
| Total AFS securities – related parties | ( |
( |
|||||||||||||||||||||||||||
| Total AFS securities, including related parties | $ | $ | ( |
$ | $ | ( |
$ | ||||||||||||||||||||||
The amortized cost and fair value of AFS securities, including related parties, are shown by contractual maturity below:
| June 30, 2023 | |||||||||||
| (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 parties | |||||||||||
| 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 parties | |||||||||||
| Total AFS securities, including related parties | $ | $ | |||||||||
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.
53
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 parties, 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:
| June 30, 2023 | |||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||||||||
| U.S. government and agencies | $ | $ | ( |
$ | $ | ( |
$ | $ | ( |
||||||||||||||||||||||||||
| U.S. state, municipal and political subdivisions | ( |
( |
( |
||||||||||||||||||||||||||||||||
| Foreign governments | ( |
( |
( |
||||||||||||||||||||||||||||||||
| Corporate | ( |
( |
( |
||||||||||||||||||||||||||||||||
| CLO | ( |
( |
( |
||||||||||||||||||||||||||||||||
| ABS | ( |
( |
( |
||||||||||||||||||||||||||||||||
| CMBS | ( |
( |
( |
||||||||||||||||||||||||||||||||
| RMBS | ( |
( |
( |
||||||||||||||||||||||||||||||||
| Total AFS securities | ( |
( |
( |
||||||||||||||||||||||||||||||||
| AFS securities – related parties | |||||||||||||||||||||||||||||||||||
| Corporate | ( |
( |
( |
||||||||||||||||||||||||||||||||
| CLO | ( |
( |
( |
||||||||||||||||||||||||||||||||
| ABS | ( |
( |
( |
||||||||||||||||||||||||||||||||
| Total AFS securities – related parties | ( |
( |
( |
||||||||||||||||||||||||||||||||
| Total AFS securities, including related parties | $ | $ | ( |
$ | $ | ( |
$ | $ | ( |
||||||||||||||||||||||||||
| December 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 | |||||||||||||||||||||||||||||||||||
| U.S. government and agencies | $ | $ | ( |
$ | $ | $ | $ | ( |
|||||||||||||||||||||||||||
| U.S. state, municipal and political subdivisions | ( |
( |
|||||||||||||||||||||||||||||||||
| Foreign governments | ( |
( |
|||||||||||||||||||||||||||||||||
| Corporate | ( |
( |
|||||||||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||||||||
| ABS | ( |
( |
|||||||||||||||||||||||||||||||||
| CMBS | ( |
( |
|||||||||||||||||||||||||||||||||
| RMBS | ( |
( |
|||||||||||||||||||||||||||||||||
| Total AFS securities | ( |
( |
|||||||||||||||||||||||||||||||||
| AFS securities – related parties | |||||||||||||||||||||||||||||||||||
| Corporate | ( |
( |
|||||||||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||||||||
| ABS | ( |
( |
|||||||||||||||||||||||||||||||||
| Total AFS securities – related parties | ( |
( |
|||||||||||||||||||||||||||||||||
| Total AFS securities, including related parties | $ | $ | ( |
$ | $ | $ | $ | ( |
|||||||||||||||||||||||||||
54
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following summarizes the number of AFS securities that were in an unrealized loss position, including related parties, for which an allowance for credit losses has not been recorded:
| June 30, 2023 | |||||||||||
| Unrealized Loss Position | Unrealized Loss Position 12 Months or More | ||||||||||
| AFS securities | |||||||||||
| AFS securities – related parties | |||||||||||
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, unless as required for hedge accounting, 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.
Allowance for Credit Losses
The following table summarizes the activity in the allowance for credit losses for AFS securities by asset type:
| Three months ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| Additions | Reductions | ||||||||||||||||||||||||||||||||||
| (In millions) | Beginning balance | 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 parties | |||||||||||||||||||||||||||||||||||
| CLO | ( |
||||||||||||||||||||||||||||||||||
| ABS | |||||||||||||||||||||||||||||||||||
| Total AFS securities – related parties | ( |
||||||||||||||||||||||||||||||||||
| Total AFS securities including related parties | $ | $ | $ | $ | ( |
$ | $ | ||||||||||||||||||||||||||||
55
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Three months ended June 30, 2022 | |||||||||||||||||||||||||||||||||||
| Additions | Reductions | ||||||||||||||||||||||||||||||||||
| (In millions) | Beginning balance | 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 parties | |||||||||||||||||||||||||||||||||||
| CLO | |||||||||||||||||||||||||||||||||||
| ABS | ( |
||||||||||||||||||||||||||||||||||
| Total AFS securities – related parties | ( |
||||||||||||||||||||||||||||||||||
| Total AFS securities including related parties | $ | $ | $ | $ | ( |
$ | $ | ||||||||||||||||||||||||||||
| Six months ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| Additions | Reductions | ||||||||||||||||||||||||||||||||||
| (In millions) | Beginning balance | 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 parties | |||||||||||||||||||||||||||||||||||
| CLO | ( |
||||||||||||||||||||||||||||||||||
| ABS | |||||||||||||||||||||||||||||||||||
| Total AFS securities – related parties | ( |
||||||||||||||||||||||||||||||||||
| Total AFS securities including related parties | $ | $ | $ | $ | ( |
$ | $ | ||||||||||||||||||||||||||||
56
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Six months ended June 30, 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 parties | |||||||||||||||||||||||||||||||||||
| CLO | |||||||||||||||||||||||||||||||||||
| ABS | ( |
||||||||||||||||||||||||||||||||||
| Total AFS securities – related parties | ( |
||||||||||||||||||||||||||||||||||
| Total AFS securities, including related parties | $ | $ | $ | $ | ( |
$ | $ | ||||||||||||||||||||||||||||
1 Beginning balance reflects allowances established at the time of the Mergers under purchase accounting for PCD investments.
| |||||||||||||||||||||||||||||||||||
Net Investment Income
Net investment income by asset class consists of the following:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| AFS securities | $ | $ | $ | $ | |||||||||||||||||||
| Trading securities | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||
| Mortgage loans | |||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||
| Funds withheld at interest | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Investment revenue | |||||||||||||||||||||||
| Investment expenses | ( |
( |
( |
( |
|||||||||||||||||||
| Net investment income | $ | $ | $ | $ | |||||||||||||||||||
57
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:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
AFS securities1
|
|||||||||||||||||||||||
| Gross realized gains on investment activity | $ | $ | $ | $ | |||||||||||||||||||
| Gross realized losses on investment activity | ( |
( |
( |
( |
|||||||||||||||||||
| Net realized investment gains (losses) on AFS securities | ( |
( |
|||||||||||||||||||||
| Net recognized investment gains (losses) on trading securities | ( |
( |
( |
||||||||||||||||||||
| Net recognized investment losses on equity securities | ( |
( |
( |
( |
|||||||||||||||||||
| Net recognized investment gains (losses) on mortgage loans | ( |
( |
( |
||||||||||||||||||||
| ( |
( |
||||||||||||||||||||||
| Provision for credit losses | ( |
( |
( |
( |
|||||||||||||||||||
| Other gains | |||||||||||||||||||||||
| Investment related gains (losses) | $ | $ | ( |
$ | $ | ( |
|||||||||||||||||
1 Includes the effects of recognized gains or losses on AFS securities associated with designated hedges.
|
|||||||||||||||||||||||
Proceeds from sales of AFS securities were $2,054 million and $1,614 million for the three months ended June 30, 2023 and 2022, respectively, and $3,194 million and $5,785 million for the six months ended June 30, 2023 and 2022, respectively.
The following table summarizes the change in unrealized gains (losses) on trading and equity securities held as of the respective period end:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Trading securities | $ | ( |
$ | ( |
$ | $ | ( |
||||||||||||||||
| Trading securities – related parties | ( |
( |
( |
( |
|||||||||||||||||||
| Equity securities | ( |
( |
( |
||||||||||||||||||||
| Equity securities – related parties | ( |
( |
( |
||||||||||||||||||||
Repurchase Agreements
The following table summarizes the remaining contractual maturities of repurchase agreements, which are included in payables for collateral on derivatives and securities to repurchase on the condensed consolidated statements of financial condition:
| (In millions) | June 30, 2023 | December 31, 2022 | |||||||||
| Less than 30 days | |||||||||||
| 30-90 days | |||||||||||
| 1 year and greater | |||||||||||
Payables for repurchase agreements |
$ | $ | |||||||||
58
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the securities pledged as collateral for repurchase agreements:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| (In millions) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||
| AFS securities | |||||||||||||||||||||||
| U.S. government and agencies | $ | $ | $ | $ | |||||||||||||||||||
| Foreign governments | |||||||||||||||||||||||
| Corporate | |||||||||||||||||||||||
| CLO | |||||||||||||||||||||||
| ABS | |||||||||||||||||||||||
| Total securities pledged under repurchase agreements | $ | $ | $ | $ | |||||||||||||||||||
Reverse Repurchase Agreements
As of June 30, 2023 and December 31, 2022, amounts loaned under reverse repurchase agreements were $891 million and $1,640 million, respectively, and the fair value of the collateral, comprised primarily of commercial and residential mortgage loans, was $1,375 million and $1,753 million, respectively.
Mortgage Loans, including related parties and consolidated VIEs
Mortgage loans includes both commercial and residential loans. Athene has elected the fair value option on its mortgage loan portfolio. See note 8 for further fair value option information. The following represents the mortgage loan portfolio, with fair value option loans presented at unpaid principal balance:
| (In millions) | June 30, 2023 | December 31, 2022 | |||||||||
| Commercial mortgage loans | $ | $ | |||||||||
| Commercial mortgage loans under development | |||||||||||
| Total commercial mortgage loans | |||||||||||
| Mark to fair value | ( |
( |
|||||||||
| Commercial mortgage loans | |||||||||||
| Residential mortgage loans | |||||||||||
| Mark to fair value | ( |
( |
|||||||||
| 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.
59
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:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| (In millions, except percentages) | Fair Value | Percentage of Total | Fair Value | Percentage of Total | |||||||||||||||||||
| Property type | |||||||||||||||||||||||
| Office building | $ | % | $ | % | |||||||||||||||||||
| Retail | % | % | |||||||||||||||||||||
| Apartment | % | % | |||||||||||||||||||||
| Hotels | % | % | |||||||||||||||||||||
| Industrial | % | % | |||||||||||||||||||||
| Other commercial | % | % | |||||||||||||||||||||
| Total commercial mortgage loans | $ | % | $ | % | |||||||||||||||||||
| U.S. Region | |||||||||||||||||||||||
| East North Central | $ | % | $ | % | |||||||||||||||||||
| East South Central | % | % | |||||||||||||||||||||
| Middle Atlantic | % | % | |||||||||||||||||||||
| Mountain | % | % | |||||||||||||||||||||
| New England | % | % | |||||||||||||||||||||
| Pacific | % | % | |||||||||||||||||||||
| South Atlantic | % | % | |||||||||||||||||||||
| West North Central | % | % | |||||||||||||||||||||
| West South Central | % | % | |||||||||||||||||||||
| Total U.S. Region | % | % | |||||||||||||||||||||
| International Region | |||||||||||||||||||||||
| United Kingdom | % | % | |||||||||||||||||||||
Other international1
|
% | % | |||||||||||||||||||||
| 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:
| June 30, 2023 | December 31, 2022 | ||||||||||
| U.S. States | |||||||||||
| California | % | % | |||||||||
| Florida | % | % | |||||||||
| New York | % | % | |||||||||
| New Jersey | % | % | |||||||||
| Texas | % | % | |||||||||
| Arizona | % | % | |||||||||
Other1
|
% | % | |||||||||
| Total U.S. residential mortgage loan percentage | % | % | |||||||||
| International | |||||||||||
| United Kingdom | % | % | |||||||||
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.
| |||||||||||
60
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 origination platforms, insurance platforms, and equity, hybrid, yield and other funds. 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 parties and consolidated VIEs:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| (In millions, except percentages) | Carrying value | Percent of total | Carrying value | Percent of total | |||||||||||||||||||
| Investment funds | |||||||||||||||||||||||
| Equity funds | $ | % | $ | % | |||||||||||||||||||
| Hybrid funds | % | % | |||||||||||||||||||||
| Other | % | % | |||||||||||||||||||||
| Total investment funds | % | % | |||||||||||||||||||||
| Investment funds – related parties | |||||||||||||||||||||||
| Strategic origination platforms | % | % | |||||||||||||||||||||
| Strategic insurance platforms | % | % | |||||||||||||||||||||
| Apollo and other fund investments | |||||||||||||||||||||||
| Equity funds | % | % | |||||||||||||||||||||
| Yield funds | % | % | |||||||||||||||||||||
| Other | % | % | |||||||||||||||||||||
| Total investment funds – related parties | % | % | |||||||||||||||||||||
| Investment funds – consolidated VIEs | |||||||||||||||||||||||
| Strategic origination platforms | % | % | |||||||||||||||||||||
| Strategic insurance platforms | % | % | |||||||||||||||||||||
| Apollo and other fund investments | |||||||||||||||||||||||
| Equity funds | % | % | |||||||||||||||||||||
| Hybrid funds | % | % | |||||||||||||||||||||
| Yield funds | % | % | |||||||||||||||||||||
| Other | % | % | |||||||||||||||||||||
| Total investment funds – consolidated VIEs | % | % | |||||||||||||||||||||
| Total investment funds, including related parties and consolidated VIEs | $ | $ | |||||||||||||||||||||
61
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Concentrations—The following table represents Athene’s investment concentrations in excess of 10% of stockholders’ equity:
| (In millions) | June 30, 2023 | ||||
| AT&T Inc. | $ | ||||
PK AirFinance1
|
|||||
Wheels Donlen1
|
|||||
| MFI Investments | |||||
Athora1
|
|||||
Atlas1
|
|||||
| AP Tundra | |||||
Atlas1 – reverse repurchase agreement
|
|||||
| SoftBank Vision Fund II | |||||
| — | |||||
| (In millions) | December 31, 2022 | ||||
Wheels Donlen1
|
$ | ||||
Athora1
|
|||||
PK AirFinance1
|
|||||
| AP Tundra | |||||
| MFI Investments | |||||
| SoftBank Vision Fund II | |||||
MidCap1
|
|||||
| Cayman Universe | |||||
| Concord Music CL A2 | |||||
| Redding Ridge | |||||
| AOP Finance | |||||
1 Related party amounts are representative of single issuer risk and may only include a portion of the total investments associated with a related party. See further discussion of these related parties in note 17.
| |||||
62
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. Derivatives
The Company uses a variety of derivative instruments to manage risks, primarily equity, interest rate, credit, foreign currency and market volatility. See note 8 for information about the fair value hierarchy for derivatives.
The following table presents the notional amount and fair value of derivative instruments:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Notional Amount | Fair Value | Notional Amount | Fair Value | ||||||||||||||||||||||||||||||||
| (In millions) | Assets | Liabilities | 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 | |||||||||||||||||||||||||||||||||||
| Foreign currency swaps | |||||||||||||||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||||||||||||||
| Other swaps | |||||||||||||||||||||||||||||||||||
| Foreign currency forwards | |||||||||||||||||||||||||||||||||||
| Embedded derivatives | |||||||||||||||||||||||||||||||||||
| Funds withheld, including related parties | ( |
( |
( |
( |
|||||||||||||||||||||||||||||||
| Interest sensitive contract liabilities | |||||||||||||||||||||||||||||||||||
| Total derivatives not designated as hedges | ( |
( |
|||||||||||||||||||||||||||||||||
| $ | ( |
$ | $ | ( |
$ | ||||||||||||||||||||||||||||||
Derivatives Designated as Hedges
Cash Flow Hedges
Athene uses interest rate swaps to convert floating-rate interest payments to fixed-rate interest payments to reduce exposure to interest rate changes. The interest rate swaps will expire by July 2027. During the three months ended June 30, 2023 and 2022, Athene recognized losses of $53 million and $0 million , respectively, in OCI associated with these hedges. During the six months ended June 30, 2023 and 2022, Athene recognized losses of $126 million and $0 million , respectively, in OCI associated with these hedges. There were no amounts deemed ineffective during the three and six months ended June 30, 2023 and 2022. As of June 30, 2023, no amounts are expected to be reclassified to income within the next 12 months.
Fair Value Hedges
Athene uses foreign currency forward contracts, foreign currency swaps, foreign currency interest rate 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.
63
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following represents the carrying amount and the cumulative fair value hedging adjustments included in the hedged assets or liabilities:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| (In millions) |
Carrying amount of the hedged assets or liabilities1
|
Cumulative amount of fair value hedging gains (losses) |
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.
| |||||||||||||||||||||||
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 June 30, 2023 | |||||||||||||||||||||||||||||
| 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 | ( |
( |
|||||||||||||||||||||||||||
| Three months ended June 30, 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 swaps | |||||||||||||||||||||||||||||
| Foreign currency interest rate swaps | ( |
||||||||||||||||||||||||||||
64
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Amount Excluded | |||||||||||||||||||||||||||||
| (In millions) | Derivatives | Hedged Items | Net | Recognized in income through amortization approach | Recognized in income through changes in fair value | ||||||||||||||||||||||||
| Six months ended June 30, 2023 | |||||||||||||||||||||||||||||
| 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 | ( |
( |
|||||||||||||||||||||||||||
| Six months ended June 30, 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:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 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 U.S. dollar. Hedge effectiveness is assessed based on the changes in forward rates. During the three months ended June 30, 2023 and 2022, these derivatives had losses of $4 million and gains of $23 million, respectively. During the six months ended June 30, 2023 and 2022, these derivatives had losses of $8 million and gains of $25 million, respectively. These derivatives are included in foreign currency translation and other adjustments on the condensed consolidated statements of comprehensive income (loss). As of June 30, 2023 and December 31, 2022, the cumulative foreign currency translations recorded in AOCI related to these net investment hedges were gains of $22 million and $30 million, respectively. During the three and six months ended June 30, 2023 and 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
65
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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.
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.
Other swaps
Other swaps include total return swaps and credit default swaps. Athene purchases total rate of return swaps to gain exposure and benefit from a reference asset or index without ownership. Credit default swaps provide a measure of protection against the default of an issuer or allow Athene 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.
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 a 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:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 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.
66
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 | |||||||||||||||||||||||||||||
| June 30, 2023 | |||||||||||||||||||||||||||||||||||
| Derivative assets | $ | $ | ( |
$ | ( |
$ | ( |
$ | $ | ( |
|||||||||||||||||||||||||
| Derivative liabilities | ( |
||||||||||||||||||||||||||||||||||
| December 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 June 30, 2023 and December 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.
| |||||||||||||||||||||||||||||||||||
7. 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. Refer to note 2 for more details 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. See note 17 for further details regarding Apollo’s consolidated SPACs.
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, receivables from affiliates and reverse repurchase agreements. Other liabilities include debt held at amortized cost, short-term payables and repurchase agreements.
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.
67
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 June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (In millions) |
20231
|
20221
|
20231
|
20221
|
|||||||||||||||||||
| Net gains (losses) from investment activities | $ | ( |
$ | ( |
$ | $ | |||||||||||||||||
| Net gains (losses) from debt | |||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||
| Interest and other expenses | ( |
( |
( |
( |
|||||||||||||||||||
| Net gains (losses) from investment activities of consolidated variable interest entities | $ | $ | $ | $ | |||||||||||||||||||
1 Amounts reflect consolidation eliminations.
|
|||||||||||||||||||||||
Senior Secured Notes, Subordinated Notes and Subscription Lines
Included within notes payable and other liabilities are amounts due to third-party institutions by the consolidated VIEs. The following table summarizes the principal provisions of those amounts:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| (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 notes1
|
$ | % | $ | N/A | N/A | ||||||||||||||||||||||||||||||
Subordinated notes1
|
% | N/A | N/A | ||||||||||||||||||||||||||||||||
Subscription lines1
|
$ | % | $ | % | |||||||||||||||||||||||||||||||
Total – Asset Management |
$ | $ | |||||||||||||||||||||||||||||||||
1 The notes and subscription lines of the consolidated VIEs are collateralized by assets held by each respective vehicle and assets of one vehicle may not be used to satisfy the liabilities of another vehicle.
| |||||||||||||||||||||||||||||||||||
The consolidated VIEs’ debt obligations contain various customary loan covenants. As of June 30, 2023, the Company was not aware of any instances of non-compliance with any of these covenants.
Repurchase Agreements
The following table summarizes the maturities of repurchase agreements:
| Remaining Contractual Maturity | June 30, 2023 | December 31, 2022 | |||||||||
| 91 days to 364 days | $ | $ | |||||||||
Total payables for repurchase agreements(1)
|
$ | $ | |||||||||
(1) Included in other liabilities of consolidated variable interest entities on the condensed consolidated statements of financial condition.
|
|||||||||||
The following table summarizes the gross carrying value of repurchase agreements by class of collateral pledged:
| (In millions) | June 30, 2023 | December 31, 2022 | |||||||||
| Loans backed by residential real estate | $ | $ | |||||||||
| Loans backed by commercial real estate | |||||||||||
| Total | $ | $ | |||||||||
| Note: These repurchase agreements are carried at cost which approximates fair value and is classified as Level 2 of the fair value hierarchy. | |||||||||||
68
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Reverse Repurchase Agreements
As of June 30, 2023 and December 31, 2022, fair value of collateral received under reverse repurchase agreements was $422 million and $1,522 million, respectively, and fair value of collateral rehypothecated was $0 million and $1,522 million, respectively.
Revenues of Consolidated Variable Interest Entities—Retirement Services
The following summarizes the statements of operations activity of the consolidated VIEs:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Trading securities | $ | $ | $ | $ | |||||||||||||||||||
| Mortgage loans | |||||||||||||||||||||||
| Investment funds | ( |
( |
|||||||||||||||||||||
| Other | ( |
( |
|||||||||||||||||||||
| Net investment income | |||||||||||||||||||||||
| Net recognized investment gains (losses) on trading securities | ( |
||||||||||||||||||||||
| Net recognized investment losses on mortgage loans | ( |
( |
( |
( |
|||||||||||||||||||
| Net recognized investment gains on investment funds | |||||||||||||||||||||||
| Other gains (losses) | ( |
||||||||||||||||||||||
| Investment related gains (losses) | ( |
||||||||||||||||||||||
| Revenues of consolidated variable interest entities | $ | $ | $ | $ | |||||||||||||||||||
Unconsolidated Variable Interest Entities—Asset Management
The following table presents the maximum exposure to losses relating to these VIEs for which Apollo has concluded that it holds a significant variable interest, but that it is not the primary beneficiary.
| (In millions) | June 30, 2023 | 2 |
December 31, 2022 | 2 |
||||||||||
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, holds 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 parties, 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.
69
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| (In millions) | Carrying Value | Maximum Loss Exposure | 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 | $ | $ | $ | $ | |||||||||||||||||||
8. Fair Value
Fair Value Measurements of Financial Instruments
The following summarize the Company’s financial assets and liabilities recorded at fair value hierarchy level:
| June 30, 2023 | |||||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||
Asset Management |
|||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||
Restricted cash and cash equivalents1
|
— | ||||||||||||||||||||||||||||
| Cash and cash equivalents of VIEs | — | ||||||||||||||||||||||||||||
| U.S. Treasury securities | — | ||||||||||||||||||||||||||||
| Investments, at fair value | 2 |
||||||||||||||||||||||||||||
| Investments of VIEs | |||||||||||||||||||||||||||||
Due from related parties3
|
— | ||||||||||||||||||||||||||||
Derivative assets4
|
— | ||||||||||||||||||||||||||||
Total Assets – Asset Management |
|||||||||||||||||||||||||||||
| (Continued) | |||||||||||||||||||||||||||||
70
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| June 30, 2023 | |||||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||||||||||||||||
Retirement Services |
|||||||||||||||||||||||||||||
| AFS Securities | |||||||||||||||||||||||||||||
| U.S. government and agencies | — | ||||||||||||||||||||||||||||
| U.S. state, municipal and political subdivisions | — | ||||||||||||||||||||||||||||
| Foreign governments | — | ||||||||||||||||||||||||||||
| Corporate | — | ||||||||||||||||||||||||||||
| CLO | — | ||||||||||||||||||||||||||||
| ABS | — | ||||||||||||||||||||||||||||
| CMBS | — | ||||||||||||||||||||||||||||
| RMBS | — | ||||||||||||||||||||||||||||
| Total AFS securities | — | ||||||||||||||||||||||||||||
| Trading securities | — | ||||||||||||||||||||||||||||
| Equity securities | — | ||||||||||||||||||||||||||||
| Mortgage loans | — | ||||||||||||||||||||||||||||
| 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 parties | — | ||||||||||||||||||||||||||||
| Trading securities | — | ||||||||||||||||||||||||||||
| Equity securities | — | ||||||||||||||||||||||||||||
| Mortgage loans | — | ||||||||||||||||||||||||||||
| Investment funds | — | ||||||||||||||||||||||||||||
| Funds withheld at interest – embedded derivative | ( |
— | ( |
||||||||||||||||||||||||||
| Other investments | — | ||||||||||||||||||||||||||||
| Reinsurance recoverable | — | ||||||||||||||||||||||||||||
Other assets7
|
— | ||||||||||||||||||||||||||||
| Assets of consolidated VIEs | |||||||||||||||||||||||||||||
| Trading securities | — | ||||||||||||||||||||||||||||
| Mortgage loans | — | ||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||
| Other investments | — | ||||||||||||||||||||||||||||
| Cash and cash equivalents | — | ||||||||||||||||||||||||||||
Total Assets – Retirement Services |
|||||||||||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| (Continued) | |||||||||||||||||||||||||||||
71
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| June 30, 2023 | |||||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
Asset Management |
|||||||||||||||||||||||||||||
Contingent consideration obligations5
|
$ | $ | $ | $ | — | $ | |||||||||||||||||||||||
Derivative liabilities4
|
— | ||||||||||||||||||||||||||||
Other 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 | — | ||||||||||||||||||||||||||||
Market risk benefits7
|
— | ||||||||||||||||||||||||||||
| Derivative liabilities | — | ||||||||||||||||||||||||||||
| Other liabilities | ( |
— | |||||||||||||||||||||||||||
Total Liabilities – Retirement Services |
— | ||||||||||||||||||||||||||||
| Total Liabilities | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||
| (Concluded) | |||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||
Asset Management |
|||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||
Restricted cash and cash equivalents1
|
— | ||||||||||||||||||||||||||||
| Cash and cash equivalents of VIEs | — | ||||||||||||||||||||||||||||
| U.S. Treasury securities | — | ||||||||||||||||||||||||||||
| Investments, at fair value | 2 |
||||||||||||||||||||||||||||
| Investments of VIEs | |||||||||||||||||||||||||||||
Due from related parties3
|
— | ||||||||||||||||||||||||||||
Derivative assets4
|
— | ||||||||||||||||||||||||||||
Total Assets – Asset Management |
|||||||||||||||||||||||||||||
Retirement Services |
|||||||||||||||||||||||||||||
| AFS Securities | |||||||||||||||||||||||||||||
| U.S. government and agencies | — | ||||||||||||||||||||||||||||
| U.S. state, municipal and political subdivisions | — | ||||||||||||||||||||||||||||
| Foreign governments | — | ||||||||||||||||||||||||||||
| Corporate | — | ||||||||||||||||||||||||||||
| CLO | — | ||||||||||||||||||||||||||||
| ABS | — | ||||||||||||||||||||||||||||
| CMBS | — | ||||||||||||||||||||||||||||
| RMBS | — | ||||||||||||||||||||||||||||
| Total AFS securities | — | ||||||||||||||||||||||||||||
| (Continued) | |||||||||||||||||||||||||||||
72
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| December 31, 2022 | |||||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||||||||||||||||
| Trading securities | — | ||||||||||||||||||||||||||||
| Equity securities | — | ||||||||||||||||||||||||||||
| Mortgage loans | — | ||||||||||||||||||||||||||||
| 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 parties | — | ||||||||||||||||||||||||||||
| Trading securities | — | ||||||||||||||||||||||||||||
| Equity securities | — | ||||||||||||||||||||||||||||
| Mortgage loans | — | ||||||||||||||||||||||||||||
| Investment funds | — | ||||||||||||||||||||||||||||
| Funds withheld at interest – embedded derivative | ( |
— | ( |
||||||||||||||||||||||||||
| Other investments | — | ||||||||||||||||||||||||||||
| Reinsurance recoverable | — | ||||||||||||||||||||||||||||
Other assets7
|
— | ||||||||||||||||||||||||||||
| Assets of consolidated VIEs | |||||||||||||||||||||||||||||
| Trading securities | — | ||||||||||||||||||||||||||||
| Mortgage loans | — | ||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||
| Other investments | — | ||||||||||||||||||||||||||||
| Cash and cash equivalents | — | ||||||||||||||||||||||||||||
Total Assets – Retirement Services |
|||||||||||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
Asset Management |
|||||||||||||||||||||||||||||
Contingent consideration obligations5
|
$ | $ | $ | $ | — | $ | |||||||||||||||||||||||
Derivative liabilities4
|
— | ||||||||||||||||||||||||||||
Other liabilities6
|
— | ||||||||||||||||||||||||||||
Total Liabilities – Asset Management |
— | ||||||||||||||||||||||||||||
| (Continued) | |||||||||||||||||||||||||||||
73
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| December 31, 2022 | |||||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Level 3 | NAV | Total | ||||||||||||||||||||||||
Retirement Services |
|||||||||||||||||||||||||||||
| Interest sensitive contract liabilities | |||||||||||||||||||||||||||||
| Embedded derivative | — | ||||||||||||||||||||||||||||
| Universal life benefits | — | ||||||||||||||||||||||||||||
| Future policy benefits | |||||||||||||||||||||||||||||
| AmerUs closed block | — | ||||||||||||||||||||||||||||
| ILICO closed block and life benefits | — | ||||||||||||||||||||||||||||
Market risk benefits7
|
— | ||||||||||||||||||||||||||||
| Derivative liabilities | — | ||||||||||||||||||||||||||||
| Other liabilities | ( |
— | |||||||||||||||||||||||||||
Total Liabilities – Retirement Services |
— | ||||||||||||||||||||||||||||
| Total Liabilities | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||
1 Restricted cash and cash equivalents as of June 30, 2023 and December 31, 2022 includes $ | |||||||||||||||||||||||||||||
2 Investments as of June 30, 2023 and December 31, 2022 excludes $ | |||||||||||||||||||||||||||||
3 Due from related parties represents a receivable from a fund.
| |||||||||||||||||||||||||||||
4 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.
| |||||||||||||||||||||||||||||
5 As of June 30, 2023 and December 31, 2022, other liabilities includes $ | |||||||||||||||||||||||||||||
6 Other liabilities as of June 30, 2023 and December 31, 2022 includes the publicly traded warrants of APSG II.
| |||||||||||||||||||||||||||||
7 Other assets consists of market risk benefits assets. See note 10 for additional information on market risk benefits assets and liabilities valuation methodology and additional fair value disclosures.
| |||||||||||||||||||||||||||||
Changes in fair value of contingent consideration obligations in connection with the acquisitions of Stone Tower and Griffin Capital are recorded in compensation and benefits expense and other income (loss), net, respectively, in the condensed consolidated statements of operations. Refer to note 18 for further details.
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:
| June 30, 2023 | ||||||||||||||||||||||||||||||||
|
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 | 1 |
||||||||||||||||||||||||||||||
| Direct capitalization | Capitalization rate | |||||||||||||||||||||||||||||||
| Adjusted transaction value | N/A | N/A | N/A | |||||||||||||||||||||||||||||
| Due from related parties | Discounted cash flow | Discount rate | ||||||||||||||||||||||||||||||
| Derivative assets | Option model | Volatility rate | ||||||||||||||||||||||||||||||
| Investments of consolidated VIEs | ||||||||||||||||||||||||||||||||
| Bank loans | Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
| Adjusted transaction value | N/A | N/A | N/A | |||||||||||||||||||||||||||||
| Equity securities | Dividend discount model | Discount rate | ||||||||||||||||||||||||||||||
| Adjusted transaction value | N/A | N/A | N/A | |||||||||||||||||||||||||||||
| Bonds | Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
74
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| June 30, 2023 | ||||||||||||||||||||||||||||||||
|
Fair Value
(In millions)
|
Valuation Technique | Unobservable Inputs | Ranges | Weighted Average | ||||||||||||||||||||||||||||
| Retirement Services | ||||||||||||||||||||||||||||||||
| AFS, trading and equity securities | Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
Mortgage loans2
|
Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
Investment funds2
|
Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
| Net tangible asset values | Implied multiple | |||||||||||||||||||||||||||||||
| Reported net asset value | Reported net asset value | N/A | N/A | |||||||||||||||||||||||||||||
| Embedded value | N/A | N/A | N/A | |||||||||||||||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||||||||||||||
| Asset Management | ||||||||||||||||||||||||||||||||
| Contingent consideration obligations | Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
| Option model | Volatility rate | 1 |
||||||||||||||||||||||||||||||
| Retirement Services | ||||||||||||||||||||||||||||||||
| Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives | Discounted cash flow | Nonperformance risk | 3 |
|||||||||||||||||||||||||||||
| Option budget | 4 |
|||||||||||||||||||||||||||||||
| Surrender rate | 4 |
|||||||||||||||||||||||||||||||
1 Unobservable inputs were weighted based on the fair value of the investments included in the range.
|
||||||||||||||||||||||||||||||||
2 Includes those of consolidated VIEs.
|
||||||||||||||||||||||||||||||||
3 The nonperformance risk weighted average is based on the projected cash flows attributable to the embedded derivative.
|
||||||||||||||||||||||||||||||||
4 The option budget and surrender rate weighted averages are calculated based on projected account values.
|
||||||||||||||||||||||||||||||||
75
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| December 31, 2022 | ||||||||||||||||||||||||||||||||
|
Fair Value
(In millions)
|
Valuation Techniques | Unobservable Inputs | Ranges | Weighted Average | ||||||||||||||||||||||||||||
| Financial Assets | ||||||||||||||||||||||||||||||||
| Asset Management | ||||||||||||||||||||||||||||||||
| Investments | $ | Embedded value | N/A | N/A | N/A | |||||||||||||||||||||||||||
| Discounted cash flow | Discount rate | 1 |
||||||||||||||||||||||||||||||
| Adjusted transaction value | N/A | N/A | N/A | |||||||||||||||||||||||||||||
| Due from related parties | Discounted cash flow | Discount rate | ||||||||||||||||||||||||||||||
| Derivative assets | Option model | Volatility rate | ||||||||||||||||||||||||||||||
| Investments of consolidated VIEs | ||||||||||||||||||||||||||||||||
| Equity securities | Dividend discount model | Discount rate | ||||||||||||||||||||||||||||||
| Bank loans | Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
| Adjusted transaction value | N/A | N/A | N/A | |||||||||||||||||||||||||||||
| Bonds | Discounted cash flow | Discount rate | ||||||||||||||||||||||||||||||
| Retirement Services | ||||||||||||||||||||||||||||||||
| AFS, trading and equity securities | Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
Mortgage loans2
|
Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
Investment funds2
|
Discounted cash flow | Discount rate | ||||||||||||||||||||||||||||||
| Discounted cash flow / Guideline public equity |
Discount rate / P/E |
|||||||||||||||||||||||||||||||
| Net tangible asset values | Implied multiple | |||||||||||||||||||||||||||||||
| Reported net asset value | Reported net asset value | N/A | N/A | |||||||||||||||||||||||||||||
| Embedded value | N/A | N/A | N/A | |||||||||||||||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||||||||||||||
| Contingent consideration obligations | Discounted cash flow | Discount rate | 1 |
|||||||||||||||||||||||||||||
| Option model | Volatility rate | 1 |
||||||||||||||||||||||||||||||
| Retirement Services | ||||||||||||||||||||||||||||||||
| Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives | Discounted cash flow | Nonperformance risk | 3 |
|||||||||||||||||||||||||||||
| Option budget | 4 |
|||||||||||||||||||||||||||||||
| Surrender rate | 4 |
|||||||||||||||||||||||||||||||
1 Unobservable inputs were weighted based on the fair value of the investments included in the range.
|
||||||||||||||||||||||||||||||||
2 Includes those of consolidated VIEs.
| ||||||||||||||||||||||||||||||||
3 The nonperformance risk weighted average is based on the projected cash flows attributable to the embedded derivative.
| ||||||||||||||||||||||||||||||||
4 The option budget and surrender rate weighted averages are calculated based on projected account values.
| ||||||||||||||||||||||||||||||||
The following are reconciliations for Level 3 assets and liabilities measured at fair value on a recurring basis:
| Three months ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| 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 earnings1
|
Total gains (losses) included in OCI1
|
|||||||||||||||||||||||||||||||||||||||
Assets – Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Investments and derivative assets | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Investments of Consolidated VIEs | ( |
||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets – Asset Management |
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||
76
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Three months ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| 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 earnings1
|
Total gains (losses) included in OCI1
|
|||||||||||||||||||||||||||||||||||||||
Assets – Retirement Services |
|||||||||||||||||||||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign governments | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Corporate | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| ABS | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| CMBS | |||||||||||||||||||||||||||||||||||||||||||||||
| RMBS | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Trading securities | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Funds withheld at interest – embedded derivative | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Short-term investments | |||||||||||||||||||||||||||||||||||||||||||||||
| Other investments | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Investments in related parties | |||||||||||||||||||||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| ABS | |||||||||||||||||||||||||||||||||||||||||||||||
| Trading securities | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||||||||||||||||||||
| Funds withheld at interest – embedded derivative | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||||||||||||||||||||||||||
| Reinsurance recoverable | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| Assets of consolidated VIEs | |||||||||||||||||||||||||||||||||||||||||||||||
| Trading securities | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Investment funds | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets – Retirement Services |
$ | $ | ( |
$ | ( |
$ | $ | ( |
$ | $ | ( |
$ | ( |
||||||||||||||||||||||||||||||||||
Liabilities – Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Contingent consideration obligations | $ | $ | ( |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
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 | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 liabilities – Retirement Services |
$ | ( |
$ | ( |
$ | $ | ( |
$ | $ | ( |
$ | $ | |||||||||||||||||||||||||||||||||||
1 Related to instruments held at end of period.
|
|||||||||||||||||||||||||||||||||||||||||||||||
77
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Three months ended June 30, 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 earnings1
|
Total gains (losses) included in OCI1
|
|||||||||||||||||||||||||||||||||||||||
Assets – Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Investments and derivative assets | $ | $ | ( |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Investments of Consolidated VIEs | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets – Asset Management |
$ | $ | ( |
$ | $ | $ | ( |
$ | $ | $ | |||||||||||||||||||||||||||||||||||||
Assets – Retirement Services |
|||||||||||||||||||||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign governments | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Corporate | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| CLO | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| ABS | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| CMBS | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| RMBS | |||||||||||||||||||||||||||||||||||||||||||||||
| Trading securities | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| 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 | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||||||||||||||||||||
| Short-term investments | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| Funds withheld at interest – embedded derivative | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Reinsurance recoverable | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| Assets of consolidated VIEs | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Trading securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | ( |
( |
( |
( |
|||||||||||||||||||||||||||||||||||||||||||
| Investment funds | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Other investments | ( |
||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets – Retirement Services |
$ | $ | ( |
$ | ( |
$ | $ | ( |
$ | $ | ( |
$ | ( |
||||||||||||||||||||||||||||||||||
Liabilities – Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Contingent consideration obligations | $ | $ | ( |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
Total Level 3 liabilities – Asset Management |
$ | $ | ( |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| (Continued | |||||||||||||||||||||||||||||||||||||||||||||||
78
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 liabilities – Retirement Services |
$ | ( |
$ | $ | $ | ( |
$ | $ | ( |
$ | $ | ||||||||||||||||||||||||||||||||||||
| (Concluded) | |||||||||||||||||||||||||||||||||||||||||||||||
1 Related to instruments held at end of period.
|
|||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total realized and unrealized gains (losses) | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Beginning balance | Net purchases, issuances, sales and settlements | Net transfers in (out) | Ending balance |
Total gains (losses) included in OCI1
|
||||||||||||||||||||||||||||||||||||||||||
Assets – Asset Management |
|||||||||||||||||||||||||||||||||||||||||||||||
| Investments and derivative assets | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Investments of Consolidated VIEs | ( |
||||||||||||||||||||||||||||||||||||||||||||||
Total Level 3 assets – Asset Management |
$ | $ | $ | $ | $ | ( |
$ | $ | $ | ||||||||||||||||||||||||||||||||||||||
Assets – Retirement Services |
|||||||||||||||||||||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign governments | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Corporate | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| ABS | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| CMBS | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| RMBS | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Trading securities | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ( |
( |
( |
||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | |||||||||||||||||||||||||||||||||||||||||||||||
| Funds withheld at interest – embedded derivative | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Short-term investments | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Other investments | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Investments in related parties | |||||||||||||||||||||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| CLO | |||||||||||||||||||||||||||||||||||||||||||||||
| ABS | |||||||||||||||||||||||||||||||||||||||||||||||
| Trading securities | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loans | ( |
||||||||||||||||||||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||||||||||||||||||||
| Funds withheld at interest – embedded derivative | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Other investments | ( |
( |
|||||||||||||||||||||||||||||||||||||||||||||
| Reinsurance recoverable | |||||||||||||||||||||||||||||||||||||||||||||||
| (Continued | |||||||||||||||||||||||||||||||||||||||||||||||
79
APOLLO GLOBAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total realized and unrealized gains (losses) | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Beginning balance | Net purchases, issuances, sales and settlements | Net transfers in (out) | Ending balance |
Total gains (losses) included in OCI1
|
||||||||||||||||||||||||||||||||||||||||||
| Assets of consolidated VIEs | |||||||||||||||||||||||||||||||||||||||||||||||