Gary Stein - Head, Corporate Communications Josh Harris - Co-Founder and Senior Managing Director Martin Kelly - Chief Financial Officer.

Steve Fullerton - Citi Patrick Davitt - Autonomous Michael Carrier - Bank of America Luke Montgomery - Sanford Bernstein Marc Irizarry - Goldman Sachs Bulent Ozcan - RBC Capital.

Good morning, and welcome to Apollo Global Management’s 2014 Third Quarter Earnings Conference Call. During today's presentation, all callers will be in a listen-only mode. Following management's prepared remarks, the conference call will be opened up for your questions. This conference call is being recorded.

I would now like to turn the call over to Gary Stein, Head of Corporate Communications. Please go ahead..

Thanks, operator and welcome, everyone. Joining me today from Apollo are Josh Harris, Co-Founder and Senior Managing Director; and Martin Kelly, Chief Financial Officer. Earlier this morning, Apollo reported non-GAAP, after-tax economic net income of $0.12 per share and distributable earnings to common and equivalent holders of $0.77 per share.

Also we declared a cash distribution of $0.73 per share for the third quarter of 2014, representing a 95% payout ratio.

As a reminder, today's conference call may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections.

We don't undertake to update our forward-looking statements or projections unless required by law. We will also be discussing certain non-GAAP measures on this call, such as economic net income and distributable earnings, which are reconciled to our GAAP net income attributable to Class A shareholders.

These reconciliations are included in our third quarter earnings press release, which is available in the Investor Relations section of our website. Please also refer to our most recent 10-K for additional information on non-GAAP measures and risk factors relating to our business.

As a reminder, this conference call is copyrighted property and may not be duplicated, reproduced or rebroadcast without our consent. If you have any questions about any information in the release or on this call, please feel free to follow up with me or Noah Gunn after the call.

With that, I'd like to turn the call over to Josh Harris, Co-Founder and Senior Managing Director of Apollo Global Management..

Thanks, Gary. This morning, I’d like to touch on a few topics including our current views of the market environment given the recent volatility. But first, I’d like to briefly summarize some of the highlights from our third quarter results with a few key takeaways.

We remain active in monetizing our portfolio and delivering significant returns to our investors. The funds we manage generated a total distributions of $4.6 billion during the third quarter which resulted in nearly a $0.5 billion gross realized carry.

The private equity transactions behind the majority of that activity were executed at a weighted average multiples invested capital of nearly 4x, reinforcing our best-in-class track record in private equity. In addition, our management business ENI of a $131 million during the quarter was more than double the amount of a year ago.

Strong realized gains in PE and solid performance in our management business were the primary drivers of our $0.73 per share cash distribution in the quarter. Our fund raising efforts, our ability to identify and originate new business opportunities and our solid investment performance continue to drive our business forward.

To put some numbers around this point, our AUM or assets under management are up 45% year-on-year to $164 billion, while fee-paying AUM is up 63% to $130 billion. Contributing to our AUM growth was nearly $3 billion of capital that was raised during the quarter.

Finally, we remain active in deploying capital in a variety of differentiated investment opportunities. Although we continue to remain net sellers in the current environment, we continue to find what we believe are well priced investments.

Across our platform, we deployed more than $2 billion in the third quarter and the pipeline of committed, but unfunded deals in private equity stood at $1.7 billion at September 30.

In addition, we announced several transactions post quarter-end including Tranquilidade, Express Energy Services and Parisian Insurance bringing the total pipeline of equity committed to $2.4 billion today.

As you know, over the past six weeks, the markets have experienced a period of increased volatility given oil price depreciation, uncertainty around Fed tightening, Ebola fears and fears in Europe around the pace of economic growth.

From mid September through mid October, looking through the intraday trading activity in the S&P 500, the index declined 10% from peak to trough before recouping some of its losses very recently.

And the yield on the 10-year treasury dropped 80 basis points during that time and fell briefly below 2%, while the VIX peaked to 26 before retrenching below 15 earlier this week. Spreads remain near all time high tight and credit markets have also experienced volatility recently.

As measured by certain leading indices, the high yield market was down nearly 200 basis points during the third quarter and leveraged loans were down approximately 50 basis points. None of this comes as a surprise to us, as we've been saying for quite some time now that the credit markets have reached to perfection.

So what is our take on all this? Broadly speaking, we expect volatility to continue, this doesn’t concern us. In fact, we write volatility since we believe it creates attractive investment opportunities and our current portfolio is well positioned for the long-term. First on equity markets and their impact on our private equity business.

As it relates to capital deployment as value-oriented investors, we would like nothing more than for the rich valuation in the marketplace to drop from their current high level. We believe that pullback in equities ultimately helps to drive pricing downward to levels where we feel more comfortable putting our client’s capital to work.

In private equity, we have more than $22 billion of capital available to deploy. And we’re actively engaged in identifying pockets of the market where declining valuations are creating opportunities. Of course, when the equity markets pullback, our portfolio may experience unrealized mark-to-market losses.

However, focusing on the March over three month stand is a short-term view versus the ultimate value created for our investors over the long-term. The reality is that the portfolio is performing well overall.

The current portfolio of public equity holdings, in the private equity funds we manage consisting of 14 companies have outperformed the S&P 500 by 46% on a weighted average basis since their respective IPOs. So, our conviction in the performance and value of those assets in our portfolio remains undertook.

As it relates to exit activity, it's no secret. And we’ve been very actively utilizing the healthy equity capital markets over the past 24 to 36 months to monetize investments. The funds we manage have generated 29 billion private equity realizations since the beginning of 2012.

As you know this activity has generated a robust realized gains and cash distributions for our investors and shareholders. And the strong pace of activity has continued into the fourth quarter with several announced transactions that have not yet closed.

The equity markets face pressure, we would anticipate a later concentration of share sales as a percentage of overall exit activity. However, if this were to happen, we believe that other channels will continue to be available to drive exit activity.

Corporations and financial sponsors are sitting on a record levels of cash and dry powder and we are observing the dialogs are becoming increasingly more active. This trend is evident.

We're looking at announced sales within our portfolio during the third quarter such as Encana's acquisition of Athlon; Eastman Chemical’s acquisition of Taminco or Norwegian Cruise Lines acquisition of Prestige. In many cases, strategic deals are done at a premiums to public equity market valuations.

And historically, these types of monetizations represent a little more than half of the exit deals we do. And then mainly because equity markets have been so accommodative in recent years, we've seen a moderation in strategic sales with less than 20% of our gross realized proceeds coming from strategic or sponsored buyers since the beginning of 2012.

Next, I'd like to discuss interest rates and specifically reiterate some of the comments I made on our last call regarding a rising rate environment and its perceived impact on our credit business. Out of our nearly 108 billion of total credit, AUM, our funds manage very little in the way of rate-sensitive assets.

In fact, excluding all of Athene's assets which is an insurance company that is designed for assets to match liabilities so there is no -- so it is designed so that there is no real duration. The duration of our credit portfolio is just under one year. We have an intentionally large exposure to floating rate assets.

So, we would welcome a rising interest rate environment and believe that it would be beneficial to our investment performance. We believe that any credit market dislocation would likely result in a quicker pace of deployment of our drawdown credit and private equity funds which tend to generate higher management and incentive fees.

We see this as a tremendous opportunity for our business and we’ve historically outperformed in these types of scenarios. The last area I’d like to address is the perceived impact of oil prices on our business. Broadly speaking, the decline in oil prices to current levels is not surprising to us.

In the short-term, the price of oil is difficult to predict and it certainly has the ability to detach from long-term fundamentals. Even at these lower prices, we believe energy is a very interesting place to be investing capital. And we’re tactically working to take advantage of the market dislocation.

Specifically, we continue to see this as an opportune time to buy physical assets in the ground and significant discount to energy prices implied by the financial markets.

We’re able to create these opportunities by leveraging our extensive resources including deep industry and technical expertise as well as seasoned management teams located across the continent. At the same time we’re assessing new investments, we're actively managing our current portfolio.

As of September 30, the net exposure to energy investments in private equity and credit excluding Athene was less than $5 billion or approximately 7% of our total invested capital in those segments. Where and when we think it makes sense, we're monetizing pieces of the energy portfolio.

This was the case with the recently announced sale of Athlon Energy which was negotiated before the selloff in oil. For the remaining investments in the funds that we manage, the companies employ robust hedging strategies. In addition, we believe we used very conservative underwriting assumptions in our investment decision.

So, in summary, although it can be volatile, we continue to believe that energy investing is one of the few arbitrage opportunities in overvalued markets. Before concluding, I’d just like to remind everyone, that we've now been public for roughly 3.5 years.

We believe our growth to-date has exceeded the high expectations in place at the time of our initial offering. To help provide you with a more transparent view of our business as well as articulate the next leg of growth, we will be holding an Investor Day on December 11, and we really hope that you are able to join us in person or via webcast.

With that, I'd like to turn the call over to Gary for some specific highlights on each of our businesses. Thanks Gary..

Funds VI held 12.9 million shares of Rexnord and 27 million shares of Sprouts. And Fund VII held 25.2 million shares of Athlon at the end of the quarter before giving effect to the announced pending sales to Encana.

Touching on capital raising, our first natural resource respond is over 70% invested for committed as of September 30th with strong performance to-date. And we expect to launch fund raising for a successor fund early next year.

Regarding capital deployment within our private equity funds, activity increased in the third quarter largely due to the closing of Jupiter Resources’ purchase of assets from Encana. Turning briefly to our credit business.

At the end of the third quarter, we had a $108 billion of AUM in credit, which includes $48 billion related to Athene, $25 billion in U.S. performing credit, $15 million in structured credit, $11 billion an opportunistic credit and $9 billion in European credit strategies.

During the third quarter, fund raising activity of $2.4 billion within credit was led by $2 billion of inflows for our third credit opportunity fund. This brings total fund commitments to $3.4 billion reaching its hard cap and well exceeding its initial target of $1.5 billion.

Importantly, the investment period for this fund began in June and the fund is already approximately one-third invested. Credit fund raising was also bolstered by commitments to several other funds totaling approximately $400 million in aggregate.

Notably, $150 million of that total was from an increase in an existing strategic managed account which speaks to a trend of not only receiving sizeable new mandates, but upsizing existing accounts. So far in the fourth quarter, we have extended our relationship with another strategic account by an additional $275 million.

By providing LPs with holistic unconstrained credit solutions targeted to their needs, we believe we are providing a differentiated service that is not easily found elsewhere in the marketplace.

Importantly, we remained active in deploying capital in a variety of differentiated credit investment opportunities with nearly $1 billion deployed in our drawdown-type funds during the third quarter.

Lastly, on real estate; we remained active in real estate debt and so far this year, the funds we managed deployed approximately $1.3 billion in first-lien mortgage loans, mezzanine loans and CMBS. On the equity side, we remained opportunistic across property types and geographies. Our U.S.

private equity real estate funds base capital is now fully invested or committed so we look forward to launching the fund raising process for our next fund in the coming months. With that, I'd like to turn the call over to Martin for some comments on our financial results..

Thanks, Gary. And good morning everyone again. Starting with our Management Business. For the third quarter, Apollo's Management Business earned $131 million of ENI exhibiting strong year-over-year growth.

Looking quarter-over-quarter, rising Management Business revenues were driven by higher advisory and transaction fees, which increased due to deployment related fees.

In terms of Management Business expenses, the modest quarter-over-quarter increase was driven by $6.5 million of placement fees related to the final closing of quarter three and a true up of interest expense to reflect the fourth quarter impact around notes offering in May.

The modest loss in other income within the Management Business was driven by adverse foreign exchange movements of approximately $5 million, which resulted primarily from the depreciation in the Euro and British Pound.

We believe our Management Business margins are healthy and as we achieve an increasing amount of scale, we expect our margins to benefit overtime. That said, we will continue to strategically invest in the business by adding talent and capabilities to facilitate additional growth.

Given the ongoing hiring activity across the fund, which included a 6% growth in headcount during the third quarter, we expect compensation expense to continue to increase in the near-term including in Q4 given the timing of bonus accruals for new hires condensed over a shorter timeframe. Turning to our Incentive Business.

In private equity, our traditional private equity funds depreciated by approximately 2% during the third quarter, which was driven by approximately 2% depreciation in publicly traded equity portfolio holdings through [March] and publicly traded debt holdings and approximately 1% appreciation in private holdings.

In credit, excluding Athene's non-subsidized assets, our funds continue to perform well with most pockets of our business generating modest positive gross returns during the quarter in the phase of the more challenging backdrop that Josh described.

That said, we had a couple of funds that either fell a bit below their hurdle or did not appreciate enough to maintain the accrual of their hurdle, which contributed to the sequential moderation in carry income.

Of the roughly $14 billion in carry eligible credit AUM not yet earning carry, approximately $6 billion is related to funds that are below their respective preferred return hurdle and the rest represents dry powder.

On an aggregate basis, the $6 billion of carry eligible credit funds in the ground and not currently generating carry are less than 2% away from reaching the hurdle as of September 30.

Lastly, on the incentive business, as we have noted in prior quarters, there was a discretionary incentive for compensation accrual in the quarter of $16 million within the profit share expense.

As a reminder, this incentive pool is separate from fund level profit sharing which can be positive or negative depending on marks and therefore can have a variable impact on the profit share ratio during a particular quarter. Next, I’d like to provide some additional information on Athene's impacts on our results this quarter.

First, the percentage of Athene-related assets invested in Apollo managed funds was approximately 20% or $12 billion as of September 30, 2014, up from 17% as of June of 30.

As was stated previously, we expect the sub-advised assets under management to increase gradually over time as long as we continue to perform well in providing asset management services to Athene and also identify opportunities to deploy their investment portfolio.

Next, Apollo has been receiving and will receive for one more quarter, monitoring fees also known as the Capital and Surplus or C&S fee. For the third quarter, this fee was $58 million.

The non-cash C&S fee is being settled on a quarterly basis in arrears in the form of additional shares of Athene based on its per-share valuation at the end of each quarter, and it's appearing as incremental value on our balance sheet. As of the end of the third quarter, Apollo had a 6.9% economic ownership interest in Athene.

This includes earned C&S and related fees through the second quarter of 2014, as well as Apollo’s general partner stake as the manager of AP Alternative Assets or AAA. In dollar terms, Apollo’s economic interest in Athene is valued $323 million on their balance sheet as of September 30.

Note that this amount excludes the $121 million gross carry receivable related to AAA as of September 30 and $58 million of C&S and related fees earned in the third quarter that we also expect to be paid in shares of Athene at a future date.

With regard to our cash distribution, the $0.73 we declared today includes our regulator distribution of $0.15 plus $0.58 of other cash earnings. The additional amount above our regular distribution was primarily driven by carried interest earned from the transactions that Gary mentioned earlier.

Based upon announced transactions from our private equity funds that were not yet closed as of the end of the quarter including the sales of the remainder of our funds holdings of Athlon and Tomiko, some cash carry we expect from the sale of Prestige to Norwegian.

We anticipate net realized carry of approximately $0.37 per share over the fourth quarter and/or first quarter of next year, pending the timing of the successful close of the transactions.

One last point, I’d like to mention pertains to the escrowing of distributions due to the general partner of a fund, which is standard industry provision that is triggered when a fund reaches a particular threshold. This typically occurs as a fund gets closer to the end of its life.

As of the beginning of the fourth quarter Fund VI went into what we call escrow, which occurs when the fair value of the remaining investments in the fund falls below 115% of the remaining cost of those investments. In the case of Fund VI, this percentage was at 108% at September 30.

And as long as this percentage remains below 115%, any Fund VI distributions due to Apollo as the general partner will not be tied out and instead will be held in escrow.

It is important to note that although it is difficult to forecast how long Fund VI will remain in escrow as of the end of the third quarter, if all of the remaining investments in the funds were to be liquidated at their current marks, any distributions that would have been held in escrow would have been paid out to Apollo as the general partner.

At September 30, our total net carry receivable across the firm was $1.81 per share and of that total, the Fund VI component amounted to approximately $0.16 per share. With that, we’ll turn the call back to the operator and open up the line for any of your questions..

Thank you. (Operator Instructions). And your first question comes from Bill Katz of Citi..

Hi, it's Steve Fullerton filling in for Bill. First question, just the media seemingly has picked up number of articles talking about possible regulatory scrutiny picking up on the industry.

Can you just speak about that broadly and specifically on the IRR issue?.

Sure Steve. It's Martin. So, we’re aware of the article, we're not aware of any investigation relating to the IRR matter. We do include GP capital in our net IRR calculations. And the reason we do that is because we calculate IRRs at the fund level and not at the investor level. We are very transparent in our disclosures to our investors.

And if you look at the impact of including versus not, the GP capital and the calculation, it’s small. And if you take Fund VII in our case, the net IRR life to-date would be approximately 20 basis points different. So, we believe our disclosures are transparent and consistent with what we’ve done previously and we believe is good practice..

Yes. I would just add that there is no industry standard and I think the focus of the article is really around whether funds are transparent about how they calculate their net IRRs as opposed to whether it is appropriate or not in terms of how calculations are done. And again, there is no industry standard in that regard..

Okay. And I appreciate the commentary on dry powder and private equity and credit.

Can you just talk about maybe geographically where you see dislocations given recent volatility to invest?.

Yes. I’d say that, Josh has said that clearly in Europe we’re seeing dislocation relative to softening of the economy over there and then certainly in the big downtick in oil prices have created some opportunity in our credit business.

Those would be the two and then also the strengthening of the dollar has hurt basic materials and natural resources away from oil. And so I’d say so those are the sort of three areas that you stand out. But anytime you get volatility, you’re going to get more opportunity across the board, but those would be the areas that I would highlight..

Great. Thank you very much..

Thank you. Your next question comes from Patrick Davitt of Autonomous..

Hi guys, thank you. My only question is around the disclosure.

I'm curious why you decided to take out the cost in fair value disclosure?.

I think generally speaking, we thought there is enough disclosure in the release to help people understand obviously where the funds are, we've got a lot of disclosure in the investment record table. And I think we generally felt that there was -- it was causing more confusion in terms of the cost versus fair value.

If you would have notice that with respect to credit for example that the cost and fair value only represented a small portion of the total credit business. So, we felt that it wasn't necessary giving you a full view of the credit business.

And therefore, felt that it's best to just to refer to investment record table and the other disclosures in the release..

And I’d also just put that in the context of other disclosures that we've added in the last three or four quarters, which we think are more useful presentations of our results..

Okay. Thank you..

Thank you. Your next question comes from Michael Carrier of Bank of America..

Thanks, guys. First question, just on the growth outlook. And I guess it depends on what you hope for because you get to pull back. You can deploy more capital, markets remained strong and the distributions continue.

So, assuming sort of steady-state environment, when you think over the next one to two years given that your portfolio is the returns are there and so you could continue to distribute. How should we be thinking about kind of the net growth of the business? So, fund raising, less distributions, obviously year-over-year the growth rate has been great.

But more recently, the distributions have been strong at (inaudible) just wanted to get your sense, when you're managing the business, how you think about that over the next couple of years?.

Yes. So, the way I would think about it is we organically are growing our credit business really just through all the opportunities that are being created by just the pullback of the banking sector globally. And we would expect to be able to grow our credit business organically double-digit.

And what I’ve said in the past is that, in the background we have what we call our R&D lab. And we’re always working on new things that might stair step the firm. The latest one those was Athene, which brought on $60 billion of assets over few years. One before that was similar level trades we did during the financial crisis.

So, it’s really hard to predict when the next opportunity will come, but that obviously would stair step the growth of the firm. Then you have tuck-in acquisitions and again we’ve got two of those and continue to work on some others. So that -- and then private equity obviously as we’ve discussed, the large flagship fund has recently been raised.

You have small incremental funds that are being raised couple of which we mentioned on this call with all that natural resources, the next fund in natural resources and the next fund in real estate. But that’s likely to be relatively incremental vis-à-vis the size of the private equity method. So, that’s the way I would describe it overall..

Okay. That’s helpful. And then, just on two of the areas that you mentioned both Europe and then in the energy sector.

Just when you’re making those investments, I guess just given some of the uncertainty, particularly on the European economy and just the price of energy, when you're making those investments, how do you gauge like the downside or protect the downside? Because, obviously on the European side, if we are stagnant for a few years, there is some things that you guys can do on the portfolio company side, but just trying to understand how you go through that thought process.

And same thing with energy, if the dynamics are changing versus the last 30 years because of production in the U.S., how do you can kind of factor that in, in terms of the investment outlook?.

Yes, I'll start with the energy and then I'll get to Europe. I'd say that in energy, we always look at the long-term fundamentals, not the short-term market fluctuations of the price. And when you look at energy, so there is a move down and it's not surprising to us.

When you look at the fundamentals of energy, and you really look through the sort of trading trends, what you see is that the supply curve where oil is economic, it’s very, very flat at around $80.

And so therefore, if the price of oil were to drop for an extended period of time below $80, you would see -- ultimately that would drop supply in the marketplace.

And therefore while the price of oil can go down below $80 for some period of time, of course and even some moderate period of time, if you're looking over a five year period, our longer term period to how we gauge our investments, it's likely to be that price or above.

In terms of the upside in oil, it's certainly geopolitical events and other things can knock it up. So if you go into it and you have -- so we look at things and we say okay where we buy -- and most of what we’re doing in oil and gas on the private equity side, we’re buying oil and gas at a pretty significant discount to that price even today.

So, you can know that price is today at 80 and it was a 90 kind of a few months ago, for us we were always buying below 80 anyway because we didn’t really focus on the current -- that current price, we’re always focusing on the 80 to begin with.

So, we feel like what’s driving our ability to continue to put money to work in oil and gas energy in North America is our expertise and our ability to buy assets through the management teams we have deployed all over North America that we think, so we have a bit of an edge in terms of how we do that.

In Europe, we always -- even though Europe appears to be growing and so forth, we always look at Europe as being flat.

And if the investment work -- I had a lot of early in the recovery in Europe people were coming in and say well, look if Europe just gets back to where it was before the last recession, look how much money we can make on these investments and we never really bought that. We always felt that Europe would be relatively flat.

So, if you can make money in a flat environment in Europe, we’ll look at the investment. Clearly there is upside to that and Europe itself is not uniform.

I mean you can’t really -- as you get into investing, you might be investing in UK that’s a better growth environment than say some areas in Southern Europe, maybe invest in Germany that’s -- although there has been some recent flattening in Germany, that's a better growth environment than other places.

So, Europe I’d just make the point it's not really uniformed. But those would be the two areas and that's how we would look at.

So generally, the reason that our returns are best in class is that we do try to find these investments where there is an arbitrage on the way in and that the purchase prices allow you to make relatively conservative assumptions and the returns will still work.

And I think that is very much the case in energy and in Europe where people are out fleeing a little bit because they are seeing some flattening that we had already anticipated..

Okay. Thanks a lot..

Thank you. Your next question comes from Luke Montgomery of Sanford Bernstein..

Good morning. Thanks. So, I wondered if you guys had any thoughts about CalPERS’ decision to exit hedge funds and what that means to the appetite for alternative strategies more broadly. I think I appreciate that you guys are in the enviable position of being able to raise more capital than you can deploy.

But just generally do see any dialogue amongst the large asset owners of the private equity industries had risk of becoming overcapitalized and that the returns will be insufficient to compensate the risk? So just with the general sentiment around the asset class with LPs at large?.

You’re saying general term as around hedge funds or around private equity?.

No, it was sort of more of read through of the decision to exit hedge funds and what that might mean for private equity?.

I think CalPERS, it's hard for me to come on CalPERS specific motivations, particularly they maybe a large investor there. Relative to other institutions’ interest in hedge funds, I continue to think it's a robust asset class.

So, I don't think -- I think certainly hedge funds recently, certainly actively managed hedge funds have had tougher returns this year. But I don’t really see a big movement out of hedge funds relative to our investors..

Yes. And I would just add, I think based on the statements that they made I think I don’t want to necessary speak for them. But I think there was a view that the hedge fund asset class for them at high fees and returns that not meet expectations that was specific to the hedge fund investments.

I think clearly as we look broadly across alternative and look at private equity and credit, the return certainly Apollo have been very strong and have delivered what has been offered up to investors in terms of the investment terms..

I mean, the hedge funds also, I mean it’s a broad category so it kind of comes out, I mean long short equity hedge fund have been particularly hard hit in this last year because many of them bet against the federal reserve policy and self interest rates are going to go up and lost.

And so, therefore that particular category, I haven’t looked at the map, but I think I wouldn’t be shock if there was some decline in that category. When you say hedge funds there is, when you broadly define the credit hit, including credit mandates and credit hedge funds and so again those that’s been growing a lot.

And so you have to also -- I have my sense from your comment is that you’re talking about long short equity type hedge funds. And we don’t really do that has no affect on us, if you want a broadly define some of our credit businesses’ hedge funds that talk kind of a business is growing abut at fast as anything in our business.

And also you also have to be careful with a little bit with the nomenclature of how you're describing it..

Okay. Fair enough. And then I share the frustration with the focus on mark-to-market over quarter, but I'm going to take a step at this anyways. I wondered if you could just talk about what your general approach is to calculating the performance on the privately held positions, what the weights on the inputs are.

I'm just trying to develop a sense of the potential volatility of that piece versus the public piece and if there's any systematic way to think about it..

Sure. So every company is different. We have a pretty robust valuation process, but -- each company individually and it comes it to inputs that are relevant to that sector. So it's not a single set of inputs we use. It really depends on the industry's vertical, the maturity of the company and how it close it might to an action..

But there is a systematic I mean there is a really systematic process of valuing private investment that is that we try to make very robust and very consistent I don't know if you want to comment on that Martin..

Yes. I mean we have a set of valuation committees that cascade up or down from asset costs up into a fully committee and we really should decompose all of their assets down into groups we're focused on. That should be better rolling for their asset class.

And so we use all available evidence that we can available to us, but inside and outside the funds to help guide that valuation process..

Okay, thanks..

Thank you. Your next question comes from Marc Irizarry of Goldman Sachs..

Great, thanks.

Related to that, Josh, could you maybe comment -- I might have missed this, but on the private equity, private company performance, just the operating performance, maybe how much of what are you seeing in the environment is sort of a little bit more market than sort of what’s going on fundamentally with the portfolio?.

Yes. So, let me start with that. So we look at the performance in our portfolio on a rolling 12 month basis and on both the revenue and on EBITDA basis and we look sort of year-over-year and then quarter-over-quarter. And the underlying performance is strong in all four, the revenue and EBITDA terms in both those time periods.

So, quarter-over-quarter Q3 to Q2 on a 12 months rolling basis revenue and even EBITDA both up between 2% and 3%. And then on a year-over-year basis, similar 12 months rolling, they’re up so between 5% and 6%. Revenue is growing; EBITDA is growing a bit more with cost management.

So, the underlying fundamentals across the book are really quite healthy..

Okay. And then just getting back to the volatility in the market and then your ability to deploy capital particularly and I'm interested in some of the credit strategies and just thinking about the locked in, the longer dated capital and versus the liquid capital and your ability to sort of capitalize on volatility and credit.

Obviously things can snapback and have been snapping back pretty quickly, Josh, any view on just having a real, this year you’re having more flexible or nimble capital and creditors and is that an advantage for you to put capital out as things move pretty quickly?.

Yes. So that’s a huge advantage and we have a lot of liquidity. And again when -- during the three or four week period between the end of September and mid October, we did see a pullback in certain sectors, particularly which I mentioned and we put a bunch of money to work.

And so from our point of view and how to pull back, we would have put more money to work. And what we're seeing is that because the dealers don't have as much as capital in terms of trading books, we're seeing the prices of securities gap a bit more, when there are selling pressures.

So things gapped down in certain cases, 10, 15, 20 points, bought a bunch and then they gapped back up. So, there is less liquidity in the marketplace either way. And I think it's fine, I think there's people out there with a lot of capital like us that are sitting there waiting for these opportunities. And I think that's how it worked.

But, so I think that's a huge advantage. We do look over a much longer time period and try to take advantage of the volatility when it comes..

Great. And then just I guess Gary, you mentioned the credit SMA. I'm just curious if there is any visibility at all into sort of pipeline of what those sort of mandates could look like going forward? Thanks..

I mean right now there is a lot of conversations and a lot of interest. Because what's happening is that the large institutions, again I'm looking at their fixed income portfolios and saying wow, I'm making 3% or 4%.

And I don’t -- I’m not being paid for the risk and the duration that I’m taking relative to fixed income markets, which are being priced off of governments and treasuries, which are continuing to be overvalued, significantly So people are getting worried about the duration and the interest rate that they’re earning on that portfolio and they’re looking for other alternatives.

And so as you know the fixed income bucket is a lot larger than the alternative bucket in the pension system. And so when people decide to look at that, you’re talking about kind of $0.5 billion chunk plus or minus which can move the needle. And many of these institutions decide they don’t want to necessarily being coming all the funds.

And so there is a lot of people setting these things up to get ready for what they see as a rising interest rate environment over time. So there is a lot of interest in that area..

Okay, great. Thanks..

Thank you. Your next question comes from Bulent Ozcan of RBC..

Hi. Just a quick question, just to go back on the two valuations. I’m not sure if you’ve disclosed that.

But could you give us the mark on your non-profit portfolio companies; what it was in the September quarter?.

Bulent, we don’t disclose at that level of detail..

You don’t? Okay, And in terms of the EBITDA growth, you’ve given us on a rolling 12-month basis, but could you give us the EBITDA growth on a basis sequentially for your portfolio companies?.

I did, so I gave two statistics, one was -- it’s all LTM last 12 months, rolling 12 months because that takes up the seasonality. And so we've provided rolling 12 months Q3 versus Q2 and rolling 12 months Q3 this year versus Q3 last year. And so those numbers that I mentioned were about of those timeframes..

Okay, great. So, you don't look at bases sequentially on a quarter-to-quarter basis..

We don't because some of the companies have seasonal attributes to the sales for [transfer]. So it's better, best to look at on LCM basis..

Makes sense. And then a quick question and I'm not sure if you can comment on that or not, but on the recent acquisition of the insurance companies, the European insurance companies in Italy.

Should we think about that as investment by PE funds into portfolio companies or are there certain synergies that can be realized in terms of distribution of just having a fee and these two companies combined, the operations?.

Yes. That's investment in our private equity fund. It's just investment in our private equity fund and it's again driven by the need for many, many banks in Europe to deleverage and free up capital. And so, we were able to take advantage of that in terms of buying that at a very good price.

And so there is no growth, and we're not looking synergies across the portfolio on that one..

Yes.

And given I guess the recent stress test results out of Europe and Switzerland, out of Italy; are you seeing an increase obviously in the pipeline or are conversations happening more frequently on transactions or potential transactions?.

Yes, we are. I mean obviously if you look at the two of the deals -- if you look at the deals we're announcing right there and energy or financial services in Europe.

And so there is generally an overpriced environment and it’s not by accident that’s because there is a lot of pressure in Europe, the stress test being the latest thing, but it’s been going on even before that for people to -- for the bank gets smaller.

And then in the energy sector there is a lot of opportunity here in North America relative to the shale phenomenon and the significant reduction in the cost of creating reserves here relative to global pricing.

And so these types of sort of macro pictures that create excess selling or excess capital need is driving pricing down in these types of sectors to points where we can actually make good money.

And that’s why we’re focusing on these sectors in an otherwise overvalued PE environment, I mean the PE environment is not cheap, it’s actually very, very high. And so I look at all these as a manager of our PE business.

And I think we’re doing a pretty good job of getting money out in good investments in a difficult environment by focusing on these types of opportunities..

Thanks. That makes sense. I appreciate that. Thanks for taking my questions..

Okay..

Thank you. At this time there are no further questions in the queue. I would like to turn the call back over to Gary Stein for any closing remarks..

Thanks, operator. Thanks everyone for joining today. Obviously, if you have any other questions, please feel free to call, follow-up with Noah Gunn or myself. And again hopefully, you'll all be able to join us for our Investor Day on December 11..

Thank you. This does conclude today's conference call. You may now disconnect..