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

Craig Siegenthaler - Credit Suisse Devin Ryan - JMP Securities Mike Carrier - Bank of America Merrill Lynch Alex Blostein - Goldman Sachs Bill Katz - Citigroup Glenn Schorr - Evercore Ken Worthington - JPMorgan Chris Harris - Wells Fargo Brian Bedell - Deutsche Bank.

Good morning and welcome to Apollo Global Management’s 2016 Fourth Quarter and Full Year Earnings Conference Call. During today's presentation, all callers will be placed in a listen-only mode. And following Management's prepared remarks, the conference will be open for questions. This conference call is being recorded.

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

Thanks, operator. Welcome to our fourth quarter and full year 2016 earnings call and thanks for joining us. Sitting around the table with me this morning are Leon Black, Founder, Chairman and Chief Executive Officer; Josh Harris, Co-Founder and Senior Managing Director; and Martin Kelly, our Chief Financial Officer.

As a reminder, this call may include forward-looking statements and projections, which do not guarantee future events or performance. Please refer to our most recent SEC filings for risk factors related to these statements.

We’ll be discussing certain non-GAAP measures on this call, including the introduction of FRE or Fee Related Earnings, which management believes are relevant to assess the financial performance of the business. These non-GAAP measures are reconciled to GAAP figures in our earnings presentation, which is available on the Apollo website.

Earlier this morning, we reported non-GAAP economic net income of $0.98 per share for the fourth quarter and $2.36 per share for the full year ended December 31, 2016. Apollo also reported distributable earnings to common and equivalent holders of $0.55 per share for the fourth quarter and $1.56 for the full year.

We declared a cash distribution of $0.45 per share for the fourth quarter bringing the total for the full year to $1.42 per share. If you have any questions about the information provided within the earnings presentation or on this call please feel free to follow-up with me or Noah Gunn.

With that, I’d like to turn the call over to Leon Black, Chairman and Chief Executive Officer..

Thanks Gary, and good morning and happy New Year to everyone. When I spoke with all of you a year ago on our year-end 2015 earnings call, you may recall the world felt much different at that time compared to today.

Equity markets were pulling back and credit markets where tightening, which drove a freeze in deal making for most of the market as the world anticipated a turn in the economic cycle, but signs of turmoil and forthcoming distressed investment opportunities where short-lived.

And by mid-February 2016 sentiment began to reverse course as investors regain confidence and markets charge upward through the year along with valuations and made historical political events around the globe.

As we reflect on the past year and look forward to the future, I’d like to walk you through some highlights of what we were able to achieve in this environment. While some years could be described as years of reaping, at Apollo 2016 was clearly a year of sowing.

The funds we manage together with co-investment partnerships invested $16 billion in aggregate during the year, more capital in a calendar period than ever before in our history. This result may surprise you given the prolonged high valuation environment we have been operating in over the past years.

Despite this backdrop however, across our integrated global platform, we remain committed to our value orientation and continue to embrace complexity in order to identify a variety of attractive investment opportunities at discounted valuations.

We were particularly active in private equity were the funds we managed deployed nearly $10 billion in 2016 well in excess of $4 billion to $5 billion per year historical average, due to opportunities that arose more recently, as well as deal flow that had been in the works for the past several years.

When financing markets seized up early in the year, our team remained active through creative deal structuring and by leveraging Apollo’s strong investor relationships. And when markets rebounded, we maintained our discipline and did not chase opportunities and we were able to identify a number of deals at attractive entry prices.

Consistent with our value orientation, the average creation multiple on investments made by Fund VIII during the year was approximately five turns, meaningful below the industry average of some 10.5 times. So not one or two multiples lower, but actually half of what the industry average is doing.

The pipeline of committed, but not that deployed capital was $2.5 billion at year end and the team remains active on the number of fronts with plenty of new potential opportunities.

Including deal activity announced in since year-end, Fund VIII has committed 70% of its capital to date, and we estimate the fund has approximately $3 billion remaining for investments, which dovetails nicely with the timing of the next vintage Fund IX.

In addition, we have more than $3 billion of incremental dry powder dedicated to natural resources in ANRP II, and we believe we are well positioned given the investment opportunities set that continues to unfold in the energy sector.

As a leading global alternative investment manager, we have continued to solidify our position and drive our business forward through organic fundraising efforts and strategic initiatives, which accumulate permanent or long dated capital outside of the traditional Fun construct.

These efforts collectively lead to $35 billion of gross inflows for the year driving us to more than $190 billion of total assets under management. $14 billion of the $35 billion in total inflows was sourced through traditional fundraising activity from mostly long dated capital.

This organic growth was driven by our teams continued success in meeting the strong investor demand we're seeing for our differentiated investment capabilities, particularly across the credit spectrum through raising larger successor vintage funds, bespoke management accounts, and newer open-end products like total return.

As we look forward to 2017 and think about fundraising, the largest single driver of AUM growth will likely be our ninth flagship private equity fund, which recently kicked off an offering process. Our current expectation is for that fund to have a meaningful closing sometime in the middle of this year.

Augmenting the $14 billion of fundraising activity during the year was $18 billion of inflows related to what we've broadly referred to as non-traditional asset management structures, which includes permanent capital vehicles such as the scene and MidCap and other platforms that manage long dated capital through unique structures such as AAME.

We believe these initiatives are highly strategic for Apollo and can offer significant growth potential over time. For perspective, Athene, which represents $71 billion of Apollo's AUM was created just eight years ago.

MidCap, which already has more than $7 billion of assets, became an affiliate of Apollo in 2013, and AAME was just created last year and is now advising on $14 billion of portfolio company’s balance sheet assets.

In aggregate, these and other non-traditional asset management structures currently represent approximately $100 billion in aggregate or just over 50% of our total AUM, which is a significant increase from just eight years ago, when these types of vehicles amounted to only $3 billion or less than 10% of our total AUM at the time.

We believe these structures are great examples of how we can identify market opportunities and create innovative solutions to drive meaningful growth for Apollo. With respect to Athene in particular the company recently completed its initial public offering on the New York Stock Exchange and began trading on December 9.

Everyone is very excited about the positive reception Athene received over the past couple of months. The IPO marks another important milestone in the evolution of the company and as we have done from the very beginning when it was created eight years ago we plan to continue to do our part to help drive the business forward.

While, I’m proud to share these business highlights with you, it is important to acknowledge that these achievements and our path forward would not be possible without the dedicated efforts of our incredible global team. With nearly 1000 strong and counting, we have been able to achieve remarkable feats.

Since talent continues to be the lifeblood of what we do here at Apollo, we have developed a strong culture with a majority of our talent as homegrown. That said, at times we identify talent outside the company, which we believe can have a positive impact in helping to achieve our long-term goals.

A recent example of this is the addition of Gary Parr as the Senior Managing Director, who joined us just last week and will work on a variety of strategic, financial, and capital markets related matters.

In addition, Gary will code share the firm's management operating committee, which comprises a deep bench of our most senior leaders who work to implement and execute the company's strategy alongside the founders.

We are very excited to have Gary join our team and believe his long career in financial services to date, sound judgment, and extensive network of relationships will be valuable to the continued growth of Apollo. With that, I’d like to turn the call over to Josh for some additional comments..

Thanks Leon. I’d like to continue the call by providing some specific commentary around a few of our business drivers that produced the strong fourth quarter results and capped a year of solid performance overall.

Starting with investment performance, the funds we manage generated positive results across all of our segments for the quarter was private equity up 5.9%, real estate up 5.3%, and credit up 2.1%.

In private equity, the healthy appreciation of 6% we saw across the portfolio was driven by 4% appreciation in private portfolio company holdings, and 13% appreciation in public company holdings. More specifically, Fund VIII continued to display positive momentum appreciating by 4% in the quarter.

Energy-related private investments were a contributor to the quarter’s strong appreciation as evidenced by the solid performance in the stock rates of EP energy, as well as other portfolio company holdings which are private. These companies had exposure to rising oil prices. In credits, the positive performance was broad-based.

Apollo's credit drawdown funds generated a gross return of 3.1%, and our liquid performing funds delivered a gross return of 1.6% in the quarter. As a result of strong investment performance across our platform during the quarter and over the past year there has been significant growth in carry Carry-Generating assets.

Only 27 billion or one-third of our Carry eligible AUM was generating Carry at the end of 2015. At present, the pool of Carry-Generating asset has more than doubled to 56 billion, representing nearly two-thirds of our total Carry eligible assets.

Looking at this another way, excluding dry powder $0.87 of every Carry eligible dollar in the ground today is generating carry.

As I mentioned last quarter, we believe this dynamics of Carry eligible assets moving into Carry-Generating territory and continuing to grow these assets as funds we managed to build value and as more capital gets invested sets the stage for the possibility of substantial realized Carry income that could be distributed to investors in the future.

We believe the public markets have largely ignored the embedded value of this upside potential. And for the most part, it is not reflected in the current stock price of our company.

Turning to asset growth and fundraising, as Leon mentioned, we generated nearly 35 billion of inflows across the platform during the year, including 7 billion in the fourth quarter.

Our credit business generated more than 5 billion of the quarter's inflows, including $2.6 billion first closing for our third European principle finance fund, a strategy which is primarily focused on buying portfolios of assets and businesses from financial institutions in Europe, fund raising is ongoing and as previously mentioned, we believe this vintage will meet or exceed the size of its predecessor fund, which reached $3.4 billion in total commitments.

There were 1 billion of inflows related to Apollo Asset Management Europe, AAME resulting from the on boarding of new assets from the balance sheet of existing portfolio companies.

We raised more than 700 million across a variety of liquid performing credit strategies during the quarter, including total return, credit hedge funds in emerging markets debt.

We also raised more than $650 million for a new strategic managed account relationship, and finally MidCap grew by more than $500 million during the quarter reflecting continued origination activities for their direct lending business.

Within private equity, during the quarter, we held a final close for our second natural resources fund bringing commitments for ANRP II to approximately 3.5 billion, making it 2.5 times the size of our first vintage. This is an example of the multiplier effects, a product can have when the prior vintage performs well.

In addition, we raised nearly $600 million of capital for equity co-investment partnerships to help finance the Rackspace private equity transaction. Before I turn the call over to Martin, I would like to highlight the strong level of Fee Related Earnings or FRE we generated in 2016.

Fee Related Earnings or FRE is a close resemblance to what we formally refer to as management, business, distributable earnings. This quarter we decided to transition our disclosures to align with the FRE metrics, which is much more commonly used by our sector.

We view Fee Related Earnings as an important indicator of a possibility to measure the more stable and predictable earnings streams of the business. The revenues we generate for FRE are primarily derived from management fees we earn from the long lived assets we manage and our funds and in our permanent capital vehicles.

As we have noted, in the past, regardless of the volatility and our realized Carry income, we expect to distribute at least $1 per share per year in cash. This is supported by the stability and growth of our FRE. You can calculate from our disclosures that we generated nearly $1.30 of FRE per share in 2016.

And that that was complemented by realized Carry income to result in a total distribution of $1.42 per share. The distribution equates to a year of approximately 7% on our share price today. Clearly, 2016 was not a strong year of realized Carry production.

In fact, it represented the lowest amount of net realized Carry income for a calendar year since our IPO in 2011.

That said, given our growing Carry receivable balance which Martin will highlight in a moment, we believe the potential for increasing realized carry income is on the horizon as we opportunistically harvest gains that have been created in the funds that we manage.

Going forward, you can expect us to continue to be very focused on growing FRE, as well as realizing carry dollars. FRE is a metric that has grown from less than $0.50 per share in 2011 to $1.30 in 2016, which represents nearly a threefold increase over the past five years.

An additional catalyst to boost FRE is coming into view, most importantly, our next flagship private equity fund that Leon highlighted. We believe FRE is an important indicator of the operational performance of the business and provides insights into our base yield earnings profile. Now, I’ll turn it over to Martin for some additional comments.

Martin?.

Thanks Josh and good morning again everyone. Turning to our results for the quarter, we generated $394 million or $0.98 per share of total ENI in the quarter, and $947 million or $2.36 per share for the full year.

The performance for the quarter and the year was driven by the various types of income beyond, including fee related earnings, carried interests, and investment income.

Starting with FRE, we earned $131 million for the fourth quarter and $530 million for the full year, up significantly from 2015, primarily due to the heighten transaction fees related to the strong capital deployment trend discussed earlier.

While fee related revenue grew by 15% year-over-year, expenses were well-managed with combined base compensation and total loan compensation expenses increasing by only 6%.

Non-compensation expenses increased quarter- over- quarter due to the previously communicated distribution related placement fees in the amount of $19 million and we currently expect severance of $10 million more of these expenses in the first half of 2017 with more than half likely to fall in the second quarter.

Excluding these placement fees, which will be fully recouped with incremental management fees over time, non-compensation expenses were roughly flat sequentially.

As we think about the outlook for FRE, we currently expect the robust capital deployment we saw in 2016 to normalize somewhat likely offering fewer opportunities for the strong transaction fees we saw last year. However, the addition of a large flagship private equity fund will offer a sizable step function in FRE.

To put some context around it, if we were to assume the next to fund is the same size and has the same terms as Fund VIII. We estimate the new fund would add approximately $0.20 to $0.25 per share of annualized FRE before counting for the impact of future realizations in predecessor funds.

In terms of performance fee and balance sheet related income, we owned $343 million of net carry an investment -related income during the quarter, and $662 million for the full year. The results for the quarter were driven by two primary factors.

One, positive investment performance across businesses, which drove a rising Carry-Generating AUM in segments, and produced combined carry of approximately $300 million. And two, appreciation in the value of Athene, which produced combined investment and carry income of approximately $150 million.

In private equity carry income earned in the quarter was broad-based driven primarily by appreciation in Fund VIII and natural resources funds. In credit, carry income was also broad-based with all fund categories contributing.

PE style drawdown fund credit strategies contributed to the greatest amount of carry in the quarter with strength coming from our European principal finance II fund, the energy opportunity debt fund, and the third structured credit recovery fund. In real estate, carry income was driven by both of the U.S.

equity funds, which helped the segment post its highest quarterly economic income results today. The most recent U.S. fund has a 17% net IRR, and is performing well to date. Turning to Athene, the fair value increased by approximately 16% from evaluation at the end of the third quarter.

The sequential increase in the evaluation was driven by the pricing of its initial public offering and the upward trading activity of its stock thereafter, partially offset by a liquidity discount we applied of approximately 10%. Liquidity discount relates to the fact that there is a lock up arrangement on our shares.

We expect this discount to gradually phase out by the end of 2018, concurrent with the expiration of the lockout.

The increase in the fair value of Athene during the quarter resulted in $101 million on unrealized gain within other income, as well as $48 million of net carried interest income from AAA and related accounts driving an aggregate contribution to fourth quarter ENI of approximately $0.37 per share.

Taking a step back and looking more holistically at our balance sheet, at year-end we had $4.31 per share of value, which is up meaningfully from just a year ago when the balance sheet value was $2.88 per share.

This growth was primarily driven by the strong appreciation in the value of Athene, as well as the significant increase in the value of our net carried interest receivable, which more than doubled from $0.87 per share at the end of 2015 to $1.77 per share at the end of 2016.

With regard to our cash distribution, the $0.45 we declared today for the fourth quarter was driven by two primary factors. First, the relative cash flow stability of our Fee Related Earnings and the upside it can create by leveraging the firms integrated platform as it relates to sourcing, financing, and executing sizable transactions.

And second, realized net carry driven by the crystallization of a portion of AAA carry in conjunction with the Athene IPO.

Our payout ratio for the quarter was a bit lower than recent quarters because we retained realized gains from balance sheet investments and there was a contingent cash-based performance award related to a prior acquisition that was triggered in relation to strong carry income earned.

For the full-year, our cash distribution of $1.42 per share represents a 91% payout ratio in line with our historical average. One last topic I’d like to touch on is taxes. You may have noticed that our DE tax rate was very low in 2016 versus prior years. Part of the reason for this relates to stock amortization deductions that ended last year.

We expected that 2017 DE tax rate will be in the high single to low double-digit range for 2017. With that, we’ll now turn the call back to the operator, and open the lineup for any of your questions..

Thank you. [Operator Instructions] Your first question comes from the line of Craig Siegenthaler with Credit Suisse..

Thanks it’s Craig Siegenthaler here. There has been a nice improvement in Carry-Generating AUM over the last year, I think we know that Fund VIII was a really large contributor, but it also looks like a number of credit funds have been driving some of that growth.

So, can you walk us through which credit funds have crossed in that carry over the last year and also which funds may be close to crossing the carry in the next couple of quarters?.

Sure Craig, it’s Martin. So we have, within credit we have about 82% of our carry funds that have money on the grounds, actually in carry. And there's about seven brand of assets that are not. The uplift has been pretty broad based.

There are a variety of sort of hedge fund like funds that we have across the platform that all had a really positive year and we are in carry versus a year ago. We have managed accounts that in aggregate contributed to the uplift, and then our CLO business and drawdown funds for the most part had strong performance.

So in the earnings deck there is a page that shows the appreciation needed for the assets not in carry to get into carry, and so of the seven it is a decent - half of that has a decent way to go, I would expect that not to get into carry. We're focused on getting invested capital backed for those funds.

And the other half is within sort of getting into carry..

Thank you, Martin and then just a follow-up on AAME, this kind of had a big splash in the second quarter, but I am still wondering when do you think that business could start generating meaningful Fee-Generating AUM?.

Well I would say that it is now said up, it is operating. The number is actually 14 billion between Delta, Lloyd, and some of our portfolio assets.

I think that we would certainly we’re locating capital to really buy or control, between our private equity funds and then capital outside our private equity funds, and we would raise, we think there is a lot of opportunities to set-up structures where we’re, where we control, setup investor groups that control liabilities in Europe, you know whether they bank liabilities or they be insurance liabilities and that is a huge area and then obviously we will manage the assets at that point and Athene.

I would say that we expect to make progress on this in 2017. This is here now..

Thanks for taking my questions..

Your next question comes from the line of Devin Ryan with JMP Securities..

Hi, thanks good morning guys..

Good morning..

So Leon provided some helpful color at the end of last year just around the levels that could, I guess, potentially compel a change in the corporate structure and so I’m sure you guys have had some more time to think about this and discuss it internally, so I am just curious if there is anything that has changed in terms of what you’re looking for out of the DC or around tax reform and if you feel any differently one way or the other as you, I'm sure you are thinking about this top of mind moving forward?.

Sure. I’m afraid that the answer is still going to be going to have to be from 50,000 feet.

We need to know a lot more as to what tax reform is going to look like coming down the pike does it relates to carried interest, does it relates to interest deductibility, does it relates to expensing, capital expenses, capital expenditures, how much our corporate and personal rates coming down, those are kind of all the touch points that really need specificity in kind of creating the sausage here in terms of whether it makes sense to change corporate form and how so.

So the devil is going to be in the details of knowing all those things and what gets passed. Look it is a brave new world for all of us. I think there is a lot that could be very opportunistic and exciting, and there will be some speed bumps that we’ll also have to be cautious about..

Got it. Okay.

I appreciate that and maybe just as a follow-up to similar comments you guys were just making on credit, how should we think about the realization trajectory in that business or I guess cash contribution potential just based on the types of funds that are in Carry-Generating today and then obviously you’ve been growing kind of the accrued carry in that part of the business as well, so I am trying to think about the forward trajectory of cash..

Sure. I think, I’d break it into a couple of buckets. There is within the Carry-Generating assets in credit is what we call the performing, liquid performing assets, including the credit hedge funds that I spoke to.

That’s why I was not sort of predictable or more stable, and so that’s throwing off about $50 million of net carry a year for the last three years or so. Above that, I guess in terms of more unpredictable are the drawdown funds, including EPS, structure credit, and the life settlements business.

And like PE it is hard to pinpoint within a timeframe what the cash carry coming into that will be. It depends on favorable assets marks, realization and meeting escrow triggers. And so, I think the only way to look at that is in the context of assets in the ground with an assumed return and carry structure and cash carry of the back of that.

Lastly, we have about $10 billion of dry powder in credit, which is largely attached to carry structures and so with that - with the investment that will come both management fee income, as well as carry income. And that depends on the deployment scenario..

Okay. All right thank you very much..

Thanks..

Your next question comes from the line of Mike Carrier with Bank of America Merrill Lynch.

Thanks a lot. Maybe one just on the return outlook, I mean, I think when we look at the past two quarters private equity has done really well, there’s obviously a lot of changes going on, on the policy side.

I just wanted to get a sense, how are the portfolio companies been performing and maybe more importantly, you know in an environment where there is a lot of change out there, you know how do you think, your position, I mean it seems like a bit of pro-growth, it should be good, but obviously there is rising rates and other offsets there..

Yes, I think, first of all the portfolio EBITDA and revenues are all up year-to-year quarter-to-quarter portfolio is doing well. And obviously the portfolio, certainly the return environment in PE at large is very, very difficult.

The average multiple, is where I mentioned the average multiple paid for transactions of about 500 million exceeded 10 times EBITDA, and debt actually has been coming down because of regulatory pressure on the banks. So, the average equity check is up and the average leverage levels are down.

So, we can all do the math that returns are coming down in a relatively slow growth environment. For us obviously, it’s different because we created our portfolio of 5.5 times EBITDA. So we are in at a huge arbitrage and discount to the average player.

In terms of the environment, I would say that most of the things that are talking about policy-wise are pro growth.

So, lower corporate taxes, lower individual taxes, infrastructure spending, all those are pro growth, and at the same time obviously, I think as rates - I think rates will go up clearly, but when rates are growing up in pro growth environment, as long as the federal reserve manages that well that will be positive. That would be a net positive.

They are two offsetting factors clearly, but that would be a net positive. So, and then there is, so that’s sort of the base case. The base case is we sort of just go along and if you look at all the things that are on the table, you could see growth in the U.S. go from 2% to 3%. I mean it is pretty significant in terms of the fiscal stimulus.

So that’s the positive story. Look there is a lot of tail wraps.

Certainly, we all have to watch what happens in Washington and then what happens globally in the EC, and in China relative to some of the political events that are going out in the EC, Brexit, the size of the banks globally in both Europe and China, the average in the Chinese economy, and then there is a lot to really be watching for and from our point of view as Apollo that’s an environment that we actually tend to shine in, and so I think if the pro growth environment works like I think certainly we’ll be sending a lot of cash your way and if there is volatility, you know we’ll certainly be creating more cash to send your way later as value steps back and creates opportunities for us.

So that would be, that’s our crystal ball..

All right, that’s helpful. And then maybe just as a follow up, you know when I look at the net accrued it keeps ticking up at the performance, Martin I know we always think about the outlook for realization, and cash carry it’s always tough.

They try to predict, but just trying to get a sense when we look at the portfolio, when it was invested maybe the seasonality of it, where the returns are? I don't know if the fund is tracking, like in line with historical trends, better than historical trends, in terms of you typically deploy, and then we see kind of the realization base, I don't know, any broad color there, I know it is tough to predict..

Yes, I mean the Fund VIII which is going to be the largest driver of Carry, got gross returns in the mid-to-high 20s, which is widely above any sort of return expectation that is attributed to private equity or us. Turns out our gross returns historically are higher than that, certainly those where that was a different environment.

They were in the mid-to-high 30s, but Fund VIII is only just over a year old on average, but we are seeing, I mean like I said when you , when everyone else is buying at 10, and you're buying at 5 there is value creation that occurs on the buy, and so certainly we are looking at, and that are things that we're looking hard at how we take some capital back and create some distributions.

So, as Martin said, it’s unpredictable, but I expect that we’ll make some progress this year..

Okay, thanks a lot..

Thanks Mike..

Your next question comes from Alex Blostein with Goldman Sachs..

Hi, good morning everybody..

Good morning..

Question around Athene, so a, maybe you guys can touch just on your broader thoughts on Athene’s growth outlook given the changes we are seeing in the rates backdrop and obviously there is all this chatter around the DOL repeal discussion, so kind of updated thoughts on Athene growth since I guess the last update of the IPO that’s the first question?.

Yes, thanks for the question. Any how it is tough for us to comment broadly on Athene’s growth, now that they are a public company I have to be certainly cautious. They have value-added us, when they are going to report earnings and clearly that will be a big topic of discussion on the call. That said, clearly they are very focused on growth.

There was a big part of the story of their offering. They continue to focus on a number of different levels, whether its reinsurance flows, new product sales, and also they just did another funding agreement that which helps drive more assets for them.

So, I think there are a little different a lot of different things happening, clearly the news overnight about the DOL is interesting, I think we are all watching that carefully, you know it is unclear where that all lands, but that was obviously a headwind for them and for the industry, and so to the extent that either gets revised or revoked that certainly removes a headwind.

So I think there is a lot of positive things that are sort of in motion's for Athene in terms of driving growth, and then there is always potential for strategic opportunities given the acquisition currency they now have through their stock, as well as the capital they have on their balance sheet?.

Got you.

And then my second question is kind of related to Athene as well, but I guess looking at roughly $300 million of gross that could carry in the AAA vehicle for you guys, can you just remind us again how we would think about that potentially being converted in the over time?.

Sure. It’s Martin. So there is lockups in place, a series of lockups actually out, our share is that we are direct in Athene locked up for 24 months and then AAA has a series of walk-ups that expire on three different dates, and our carry attaches to those on one days. So they will be, and I'm winding 2017 and another one in 2018.

So that will - whether or not we actually take cash versus shares we will make a decision at the time, but that’s a future choice..

Got it, but it is a 2017, 2018 potential addition kind of cash carry event for you guys?.

One of three to come is 2017..

Yes got it..

Yes, just to reiterate that’s separate and apart from the direct ownership stake we have in Athene at Apollo we own 15.1 million shares or Athene..

Yes, that's right this is a AAA vehicle, got it. Thank you..

Yes correct..

Your next question comes from Bill Katz with Citigroup..

Okay, thank you very much for taking my question this morning.

First, a big picture, I joined the call a little later, so I apologize if you did cover this, I think you recently added Gary Parr to leadership, just giving his background, sort of curious if you could comment, how you are thinking about M&A at strategic level, what properties or geographies or product sets might be might be of interest on sort of a go forward basis?.

Yes, obviously really excited to have Gary on-board and he adds a lot of capability in deep, deep relationships across the financial world and clearly we are constantly looking at how to grow our platform in a way that is accretive into our value in our long run growth and prospects. And so Gary will help with that.

In terms of staying, we are just starting to talk specifically on what we are doing clearly, I mean as we said previously we are a little small in real estate.

Forget about those one, we are too small in real estate, we like to get bigger, and then from a credit point of view there are a whole bunch of different things where there are growth opportunities for us, and so those would be kind of the areas that we would be looking at.

Right now, we’re kind of 75% to 85% North America, and then kind of 15% to 20% Europe, and only 3% rest of world, and we right now, we are kind of focused in our core markets, but in that just the value proposition, while we are global with value proposition continues to be, at least us that are here than we are seeing in the emerging markets, but we are also going to look there.

We're kind of focused in our core geographies right now. So hope that gives you enough, that’s about as much color as I can give you..

Okay. Thank you. And then, I may have missed this, perhaps for Martin, within the - first of all, thank you for the unit disclosures. Within that, G&A and even comp looked a little bit light, the most recent run rates. Anything unusual in there? And, again, I apologize if you already covered this in your prepared commentary. .

G&A. Well G&A we managed carefully. So the volatile line within non-comp displacement fees, which we talked about I would look at the current G&A a number as sort of run rate levels..

Okay, thank you very much..

Thanks..

Your next question comes from Glenn Schorr with Evercore..

Hi. One quickie follow-up on the Athene side was, at the time of the float, I think people in the insurance committee were - I'm sorry, insurance community - were having questions about the exclusivity of the relationship with you all and the fee exactly.

From an Apollo analyst or investor standpoint, we think it's an awesome thing and we think you add tremendous value. From their side, they didn't know if there were any conflicts there.

So, curious about on the today forward of new assets raised and as they grow their business, is it okay for us to expect the same relationship at the same levels to continue?.

Yes, you look, I think we together with Athene help start the business back 8 or 9 years ago, it has been a great relationship. I think Athene has grown I think to levels that probably weren't expected at the time the business was created. And I talked about, just a couple of minutes ago a lot of growth still in front of them.

It has been a great partnership, I think us providing asset management services to them has helped them deliver really leading ROEs and so I think as long as we continue to perform we would expect the relationship to be very strategic and really positive for both us and Athene..

And in terms of the community, I mean, certainly the stock itself was very well received, the offering was below was subscribed and the centerpiece of Athene is its relationship with Apollo, so I really wouldn't expect it to change..

Yes, we should add, we have a long-term contract in place that comes up for renewal at the end of 2018, October 2018, three-year rolling contract. We did make a slight concession towards the end of last year on a certain portion of their organic assets, where we gave a, I think rebate for just a small portion of their assets for the balance of 2016.

So, again as being good partner was helping them have good profitable growth. We will do what we need to..

Got you. Okay. I appreciate that. Also on, just curious for any update on the retail opportunity you guys are pursuing. It looks like the sub-advised fund through Waddell has been doing okay, just curious on an update there. That would be great..

Yes, I mean I would say there is, we continue to believe that the retail community has more demand for, there is way more growth there that they are under allocated relative to certainly more liquid alternatives yield, yield, yield in term of, certainly some of our debt products, some real estate products, and real estate debt, and some even going into real estate core equity.

And so, we are seeing growth there in terms of what we do.

We are also seeing some of the high network systems from the wire houses embrace some of our more deeper alternative products such as our core private equity fund and EPF, those had big retail demand we're seeing growth there, and so I just think we're going to see continued positive growth and positive momentum and it’s an area that we’re investing in as a firm in terms of people..

Okay. Thank you, very much..

And certainly the DOL thing of it, if it happens it would be a positive both for Athene and for that part of our business..

Your next question comes from Ken Worthington with JPMorgan..

Hi, good morning. Leon highlighted energy as holding an usually good investment potential for Apollo. The theme of energy has sort of evolved over time. Three years ago, there was one theme, maybe a year ago, that the reasons to get involved in energy were different.

So as we think about energy more broadly now, oil prices have kind of recovered smartly, some of the pressure has been taken off, what are the themes that you think you guys want to invest behind today as you think about the energy business for the next couple of years?.

So, I mean I think we have a very developed proprietary expertise in energy and what that amounts to is, you know teams all over North America of Scientists of land men, of engineers, or petroleum experts that can look at a field of reserves and kind of figure out what it’s worth and how to produce it more effectively than others and when you pair that with very seasoned private equity professionals and debt investors, we feel like we have a big edge in energy, and it’s been a really positive aspect of our franchise.

If you think about what - and it does move around, I mean obviously the opportunities change. I think relative to the opportunities today what we’re finding is the ability to buy reserves and acreage both producing and nonproducing.

In the best fields in the US at significant discounts to fair value as measured by acreage value or cash flow value SEC PV10, and we are just seeing that, the problems that existed in the energy sector when oil went from 100 to 30 has put enough pressure on all the producers that people just don't have the capital to spend and in even the best fields.

And so we are able to do the cherry pick and end up with the absolute best real estate in North America in the U.S. and Canada.

And controlled reserves that our economic had very low prices of oil and gas, well below the current curve, and so when you can get that type of reserve, what you find is, even around volatility and oil prices you have a lot of downside protection and you have real upside volatility, and so we’re creating these asymmetric risk return opportunities, particularly in private equity, which is the most active part of our energy investing business right now, where between hedging and the cost that we can bring reserves out of the ground.

We are sort of really comfortable that we're going to get a positive return on almost, under almost any energy scenario, but if the curve happens or above the curve we get 20%, 30%, 40% returns. And so this is an area that right now is relatively active and interesting and that’s how it’s shifted today.

There is also, there is a bit of distrust, but much more buying assets right now..

Great. Thank you for all the color there. And then, sort of a cleanup question, Fund VI and VII still well in escrow.

Do you guys expect these funds to make their way back above that escrow threshold or is that just something that you guys believe is less realistic?.

I think in the case of VI it is unlikely we get above escrow. It is possible we get cash out, but not till the end of the fund. The escrow ratio there is in the low 80s and it’s about $160 million of cash carry that has been realized that sort of traps, and so the way the math and the formula works is, it’s unlikely I think.

In the case of VII, I think it’s much more likely VII’s ratio is at a 103%, and it didn't increase as much as you may have thought, given that we sold an asset as part of the Hostess transaction, and so we took some cash here. So, VII is at a 103% and has 16 million of cash sitting in escrow.

It needs 13% appreciation to clear its escrow, which would itself create another 100 million of carry. So, that’s certainly within the realm of possibility or if is not likely. But it needs close the gap on the values to clear 115. .

Okay great, thank you very much..

Your next and next question comes from the line of Chris Harris with Wells Fargo..

Thank you. Wondering if you guys could comment on how important you think tax deductibility of interest expense is to your returns and your business model in general, and I'm asking this question because there's quite a few investors that think the PE industry will be materially impacted if that gets changed.

So, a, do you agree with that notion? And then, a, what's the impact on Apollo?.

Hi, this is Leon. I would say a definite may be.

And the reason I say that, you know if interest rates stay relatively low, it has a much less of an impact as interest rates go up, the impact goes up, but again referring to my previous answer, it also is tied into what the whole picture is going to look like, part of what Paul Ryan’s talking about in his tax bill is not only interested reducibility, but also being able to expand to all capital expenditures upfront, which could have a huge beneficial offset to the interest deductibility hit.

So, the answer is we don't know. Certainly, on the face of it, if you're dealing on a higher rate environment and that’s the only thing happening to you, it would have a negative impact on private equity whose other name is leverage buyout.

But in the context of other offsetting things and the fact that interest rates historically are relatively low eight men are have much of an impact at all. The other thing is who knows if it happens. As we talked before, so much of this is intertwined with how much our corporate rates supposed to be going down.

What happens with border taxes to make it, the whole capital expenditure thing, interest deductibility is a whole area that I don't think from a qualitative point of view has really been studied yet.

It is not only it is impacting the credit markets, it’s impact on the real estate sector, but basically on small businesses and new jobs growth, we are an entrepreneur, basically wants to take a loan out to expand the factory, that creates jobs. So, I think there is a long way before any of us are going to be able to predict the outcome here..

And as a business model, I think that the public markets are leveraged three times, the private markets are leveraged five times, little over five times. So, on the margin certainly there are a little bit more leverage of the private markets.

The private equity markets provide a lot of whether it be uninteresting things that are too cheap in the public market, whether it be solving management issues or helping companies grow, there are plenty of things for - there is going to be a lot for private equity to do with or without interest deductibility and so I think, they will be, if these are interest adaptability, order border tax or any other these stuff happens there will be a fair amount of dislocation industry by industry company by company and that will kind of create a lot of opportunity for people that are smart and nimble and opportunistic..

The last thing I would say is that Apollo and private equity really does have our differentiated model than our peers. We've already pointed out on this call, but on a 10 multiple environment, 10 plus that we are buying our portfolios at the 5 to 5.5.

Well what does that mean, also as it relates to leverage and I think that we are leveraged less than our peers. If you are buying it 10 times, you are leveraging up to the cap of six times, if you are buying it five times or 5.5 times, it means you are on an average leverage to about four times.

So, we are relying on less leverage on a model than most of our peers..

Just a quick follow-up, if I may, on this point.

Is it fair to assume that the returns you guys generate in PE, the vast majority of the upside is coming from really the price you pay for companies versus your exit multiple as opposed to things having to do with deductibility of interest expense and so on?.

I think what we've learned in our 27 years at Apollo, almost 27 is that the good in private equity you have to be good in three things, one you have to buy right, two you have to build value, and three you have to sell right. All three are critically important.

I think part of our differentiated model is that we focus an awful lot on the value orientation on the buy side. So there are a lot of things that go into buying a good company, barriers to entry, good management, growth statistics, margins all of those are important, what we have kind of felt is that the single most important is price paid.

So, it’s part of our focus, but it is certainly not a replacement for building value or selling right also..

Just to hear your question directly, very little of our value creation comes from interest adaptability, almost it’s negligible. So, I mean a lot of it is buying rate and a bunch of it’s EBITDA growth and cash flow generation. I mean I haven’t kind of calculated the specific number, but it’s not going to be a big number..

That's what I figured. Great. Thank you..

Thanks..

Your next question comes from the line of Brian Bedell with Deutsche Bank..

Great, thanks. That's actually a great segue to my question.

Just looking at your historical creation multiples in your prior funds, Fund V at 6.6%, Fund VI at 7.7%, Fund VII at 6.1%, and now you are at 5.5% and you are in a higher, obviously, multiple environment, so can you talk about, I guess, what's made you better at buying through these cycles? And as we think about Funds IX and you think about the opportunities in Fund IX, are you bullish on being able to mimic Fund VIII or even do better than Fund VIII on creation?.

Yes, I mean I would say that look we're just getting better at our craft, the team is getting more experienced. We’re adding a lot of capability to allow us to source transactions in a much more proprietary way such as energy, would be an example or financial services in Europe.

So I think all of those things, I think we are just getting to be more seasoned in better at craft, I think also we’ve added broker dealer that allows us to go outside the traditional financing market. So in the case of a number of transactions the largest, the most notable one being ADT.

We were able to get a deal done on a multi-billion dollar financing, by placing a preferred with a non-traditional source that other people couldn't do.

And therefore, we got a really good price on, we think, we think we got a very good price on ADT, and then I would say that there is a whole sort of series of internal factors in terms of the development of our team.

Externally, we are finding for the first time that the public markets have really, while the public markets multiple has been high that there has been a real differentiation between the haves and have-nots and in many cases we’re funding great companies at low prices.

We did, we did six public to privates in this fund and that’s relative to a very small number in our history where even though you put a premium on a company like ADT or Rackspace or Diamond Resorts, or Outerwall we found that there is misevaluation in our opinion in the markets and I think a bunch of that has to do with, I think value strategies were out of favor in the marketplace, and certainly index funds were growing, activists investors in many times are now lurking around forcing undervalued companies to do something about it.

The hedge funds have a lot of wind in their face and so I think there is some external factors that are providing some opportunities hospitably in the public markets, but those are all the reasons why I think we are doing better. I’d say in Fund IX.

I think the big opportunity for us is that only 4% of Fund VIII was stressed, which is the lowest in our history and that really has to do with, I think the monitory environment that existed, the quantitative easing and liquidity that was in the markets, as well as the fact that we haven't had a recession in seven or plus years, and so when I look at Fund IX, which is going to be six years going forward, I feel like we will have some and in the ageing credit cycle we're going to have some distressed activity opportunities.

Those tend to be traditionally at lower multiples, whether we will get below 5.5, I mean I think that’s a tall order, I mean 5.5 is a really good number, but we're certainly going to try..

Just to add what Josh said, we really do have a differentiated model in PE and the reason we are able to pay lower valuations is kind of the fact that we follow kind of three pathways.

One during recessions and when we've had four of those since we started 26.5 years ago, we dial to our distress capabilities a lot of people know that that pathway is one that allows you to back in to good buyouts through buying in the right part of the capital structure and delivering companies in the restructuring process and hopefully we end up owning them.

If we don’t end up owning them, we make a lot of money on the debt and we recycle. What a lot of people don't realize is that the entry level of what we’ve been able to do in distress has been at about five multiple, historically. And that’s about a third of our capital over history in private equity.

Another third has been in complex deals, carve outs, build-ups. Things that take a year to get done, under managed companies, undercapitalized divisions of companies. The average on those has been about six multiple because of the complexities involved. Finally, we do idiosyncratic buyouts where we are competitive.

We look at auctions in the nine industries that we cover really well. There we’re looking for an edge.

What is an edge, ADT, the fact that we already owned two security alarm companies and that we could bring 200 million of synergies to the table was an edge, also the fact that we had the management, the best in the industry that came from ADT and they were well.

And as Josh already pointed out, the ability to get things done through our capabilities in the credit markets allowed us to get it financed in the very difficult market a year ago. So there we are willing to pay as much as seven times, when you add all of this up, it gets us into the high fives or low sixes.

It’s a good model and you ask about the progression historically, we had that model, but we made some exceptions in early of funds.

I think we stumbled when we did Realogy and we did Caesar's because we paid very high prices for those, for what we thought were good reasons, we knew the industries well, they were the best brands, but you know since then we’ve said no exceptions.

You haven't seen anything like those multiples paid for anything in Fund VII, Fund VIII and nor will you in Fund IX. So the discipline is there. So, you don't know in each vintage, vintage VII was two thirds the stress as Josh pointed out, it was less than 5% in Fund VIII. So that is our differentiated model.

Many roads to Rome, many of our competitors do well, but I think by paying lower prices and sticking to that we have more room for error than they do. So, it’s a very good model for us, and has worked very well for us and that’s what we plan to continue with..

Thank you. Ladies and gentlemen we have reached our allotted time for questions. It is now my pleasure to hand the program over to Gary Stein for any additional or closing remarks..

Great. Thanks operator and thanks again everyone for joining us today. As I mentioned earlier, if you have any follow up questions please feel free to give Noah Gunn or me a call. Thanks..

Thank you ladies and gentlemen. This does conclude today’s conference call. You may now disconnect your lines..