Earnings Call Transcript - APO Q2 2022

Operator, Operator

Good morning, and welcome to Apollo Global Management Second Quarter 2022 Earnings Conference Call. During today’s discussion, all callers will be placed in listen-only mode and following management’s prepared remarks, the conference call will open for questions. Please limit yourself to one question and then rejoin the queue. This conference call is being recorded. This call may include forward-looking statements and projections, which do not guarantee future events or performance. Please refer to Apollo's most recent SEC filings for risk factors related to these statements. Apollo will also be discussing certain non-GAAP measures on this call; which management believes are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to GAAP figures in Apollo's earnings presentation, which is available on the company's website. Also, note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest of any Apollo fund. I would now like to turn the call over to Noah Gunn, Global Head of Investor Relations.

Noah Gunn, Global Head of Investor Relations

Thanks operator and welcome again to our call this morning. Earlier today, we published our new earnings release and financial supplement on the Stockholders portion of our website. Additionally, for those who are able to tune-in live, we have the presentation and video replay of the Retirement Services business update we hosted in June available on our website. For the second quarter, we reported recorded quarterly fee-related earnings of $341 million or $0.57 per share and spread-related earnings of $442 million or $0.74 per share, which together totaled $783 million or $1.30 per share. We also reported normalized SRE of $535 million or $0.89 per share which was also a record and increased 10% quarter-over-quarter. In total, we reported adjusted net income of $566 million or $0.94 per share. Joining me this morning to discuss our results in further detail are Marc Rowan, CEO; Jim Zelter, Co-President; and Martin Kelly, CFO. With that, I’ll now turn the call over to Marc.

Marc Rowan, CEO

Thank you, Noah, and good morning. This is among my favorite weeks. It's the week when our next class of associates join Apollo and we do our best to integrate them into our firm and our culture. And it's also a good chance for us just to step back and really synthesize for them the things that make our firm unique. And there are three that I always focus on. The first, our business, in fact, our industry, is built on the proposition of excess return per unit of risk. We're not in the AUM business. We're not in the fee business. We're in the business of providing clients excess return per unit of risk. So, long as we do that, the business will take care of itself as it has this quarter and throughout this year. The second, and it's a very different proposition than almost anyone else in our industry, we are an aligned investor. Our retirement services balance sheets through Athene, Athora are among the largest investors in each of our products, side-by-side with our third-party institutional and retail clients. Alignment is something unique in our industry and is something of great comfort to our clients, particularly during periods of market volatility. And finally, and I know it will bring a smile to people in this room and elsewhere, we do one thing really well: purchase price matters. Purchase price matters is a philosophy that starts with the protection of principal and is embedded in absolutely everything that we do. We approach our credit business, purchase price matters. We want to be top of the capital structure, senior secured. We approach our equity business in that we want to buy growth, but we don't want to pay for it. So we're prepared to work hard. The reality is purchase price matters as a strategy has allowed us to play offense in every corner of our business this quarter, and it could not have been a better quarter in terms of execution and strategic progress. I'll do a quick tour of what I think were the highlights of the quarter, and then Jim and Martin will certainly add to it. As Noah stated, record FRE for the quarter, you should expect FRE to accelerate in the back half of the year and into 2023, consistent with the estimates we provided to you in our Investor Day back in October. Record SRE, particularly on a normalized basis this quarter $36 billion of inflows. The calendar was a little bit unkind to us and did not include a first close on Fund X, which would have added $13 billion to this total, but make no mistake that will show up in next year. This morning, we also announced the multibillion-dollar launch of S3, our GP and LP solutions business. We launched this quarter our first, next-generation global wealth product, Apollo aligns alternatives, which I will spend some time on throughout this call, record fees from Capital Solutions. We have a very clean book. We have zero hung deals, zero losses, and this is an amazing time to actually put on risk when everyone is retreating from risk. Let me turn to Athene for a moment. Athene averaged $900 million plus per week of inflows across all channels. Volume is interesting, but they're coming at near-record spreads. Business in the second quarter produced 110 basis points of pre-tax net spread. We're able to do both the volume and the spread while actively upgrading the portfolio due to market volatility. The quarter was also an incredibly important milestone. We added a Moody's rating of A1 now puts that alongside our A+ from S&P and our A+ from Fitch. Athora also had an absolutely amazing quarter. We announced a sizable transaction in Germany, which will close at some point next year, we believe. We also closed a deal in Italy this week, which will add about $5 billion of incremental fee-paying AUM. We added a new CEO, Mike Wells, Jim will touch on that. And you should expect us to do a sizable capital raise in the second half of this year, further bolstering Athora's firepower and growth. There is no entity in the European market that will have raised anywhere near what Athora has put together in terms of its capital base to become the premier consolidator in the European market. In terms of investment performance, PE outperformed the S&P 500 by 1,100 basis points in Q2 and more than 2,200 basis points year-to-date. The Athene alt return, which represents a subset of what we do, a more downside protected was plus 6% in Q2 versus minus 66% annualized for the S&P. A differentiated and downside protected portfolio is exactly what we want on a regulated balance sheet. In our yield business, directed origination strategies were very strong contributors to the quarter. And as you recall, the vast majority of what we do in yield is top of the capital structure senior secured. In markets like this, we do some of our best work and $40 billion of gross capital was deployed across our business in Q2. Turning now to the three bets, capital solutions I've already touched on, and I know Jim will go into detail. Suffice it to say, coming into the market with a very clean book without any exposure gives us a lot of firepower at a point in time when everyone is pulling back. In origination, this is just a good time to originate assets. We originated $21 billion this quarter, $100 billion year-to-date, and we are a reliable source of financing when public markets and, in fact, private markets often do not cooperate. To give you a sense of how this is impacting some of our platforms, take our mid-cap, mid-market senior secured lending platform. For this half, there's a 16% return on equity compared to low teens historically. This reflects a lot of firepower, a lot of capital, the absence of competition. We closed 17 new deals across 12 new relationships in June alone, first half origination volume, $9 billion, up 25% year-over-year. If I look at Wheels Donlen, which is our fleet leasing platform, our initial investment in Wheels Donlen was $2 billion of AUM in the first quarter of 2021, pro forma for the announced acquisition of lease plan and other growth during the year we should close the year out at more than $7 billion of AUM across this platform. Finally, our transaction to purchase Aqua, another platform focused on home improvement, particularly solar, also closed last week, business is performing well. Let me move now to global wealth. We are a scaled player in the global wealth business. We've been through with metrics over a period of time. Our brand is resonating across the global wealth platform. If I step back and think about where the industry is, we are in very, very early days. If you think about what we, as an industry, have offered the global high net worth community thus far, we've offered them REITs, BDCs and private funds, essentially the same product set we have offered for more than 20 years. Not much new has been created to this for this market. The growth in this market, despite the older product set has come as a result of institutional level fees being offered to high net worth for the first time. And technology and market understanding, which have made the products more accessible, more approachable and more easily digestible by global wealth systems. We clearly will offer REITs, BDCs and private funds and have successfully been doing that across our platform. And I know Jim will touch on some of that. But our desire here is to be positioned in this market as a thought leader and as an innovator and to create products specifically for this channel that really seek to eliminate friction points that historically have kept this channel from really embracing alternatives. This quarter, right at the end, we announced the launch of AAA, Apollo Aligned Alternatives. This is designed with the individual investor in mind. What we seek to do in AAA is to produce equity-like returns, with fixed income-like volatility. AAA represents 180 different positions, which have been put together over the past 13 years, which have a very fine track record and represent the entirety with some limited exceptions of Athene's equity accounts. Essentially, an individual investor gets to invest side-by-side with Apollo and Athene across its balance sheet in a way that is fully diversified, without capital calls. In a nuanced way, this is private, and it is equity, but it is not private equity. This is not a replication of levered buyout or a private fund. This is fundamentally a replacement for S&P core equity holdings within an investor's allocation.

Jim Zelter, Co-President

Thanks, Marc. Our second quarter results showcase that virtuous flywheel effect we're witnessing across our business as it relates to capital formation, debt origination and deployment. We generated very strong quarterly inflows of $36 billion, including $24 billion from asset management and $12 billion from retirement services, and the quarterly total would have been nearly $50 billion if we included the recent Fund X commitments that Marc cited. Our debt origination engine continued to source attractive investments during a very volatile and uncertain time in the public markets, generating $21 billion of volume. And across the platform, gross deployment totaled $40 billion in the second quarter and $175 billion over the last 12 months, which demonstrates the scale and breadth of our investing capabilities. There's a lot of great things to talk about across the firm right now, so my remarks this quarter will take you on a highlighted tour around the franchise. But first, I'll start with an important reminder. Many of you know that we have built our business to be resilient and excel in times of market dislocation. We manage long-dated and perpetual capital for our clients, we have a proven ability to find and create value, and we can diligently wait for opportune windows to monetize investments. As Marc highlighted, our approach is grounded in purchase price matters, i.e., price discipline, and the downside protection mentality that permeates everything we do. In moments like this, where levels of uncertainty are high and market volatility is elevated, we often will put significant amounts of capital to work as we did in the second quarter. We see a growing pipeline of attractive investing opportunities to deploy the $50 billion of dry powder we have across our yield, hybrid and equity investing strategies. Starting with yield, our cautious positioning at the top of the capital structure, primarily in senior secured positions has driven broad outperformance across our funds this year. Our direct origination strategy is appreciated by more than 3% in the second quarter, while corporate credit performance has held up well compared to comparable benchmarks. With traditional sources of financing stepping back in mid heightened volatility, we're seeing tremendous deal flow in our pipeline and near-term demand is quite robust. As spreads have widened, we've moved up to this spectrum to generate the same attractive returns. For example, spreads on new issue large-cap private direct lending investments are now exceeding 650 basis points over SOFR. Year-to-date through July, we've committed to 11 transactions of at least $1 billion in size, demonstrating the scale and certainty we can provide our clients in turbulent periods. We've also issued nine CLOs and opportunistically purchased over $1 billion of investment-grade CLO tranches this year-to-date, for both our retirement services clients and other accounts with yields approaching 8% to 10% for AA to AAAB risk when considering original issue discounts that are infrequently available. We're also seeing tremendous opportunity for our hybrid funds as strategies that provide equity like upside with structured downside protection are becoming more and more effective. Our hybrid value franchise, in particular, proved quite resilient with our first vintage appreciating 1% in the second quarter, and we held a final close for a Cohort 5, raising approximately $2 billion of capital in just a few short months. The deployment pipeline has grown quickly as companies are seeking bespoke solutions in this environment, and we expect to have a very active second half of the year. Interestingly, the collapse of growth equity markets has created a unique financing opportunity and challenge for once highly valued companies. We are aiming to capitalize on the dislocation by providing preferred equity and creative debt structuring. This is how purchase price matters mentality approaches the growth equity market. Turning to equity, our pipeline of investment opportunities is strong, and we expect to deploy a meaningful amount of capital from our flagship private equity funds in the coming months. We have approximately $1 billion of remaining capital in Fund IX to deploy before the fund is fully committed. In terms of successor, as of today, we have received $13 billion of commitments for Fund X representing more than half our total target of $25 billion. We are currently seeing strong support from both existing and new institutional investors, especially from outside the United States and expect to raise a record amount of capital from the growth global wealth channel. Despite the frequently discussed congestion dynamics in the market, we believe we are offering a differentiated product, and we remain confident in meeting our targets.

Martin Kelly, CFO

Thank you, Jim, and good morning, everyone. Reflecting on Marc and Jim's comments, the second quarter results showcase the strength of our earnings power during a time of significant market disruptions and volatility. Before we delve into the specifics of the quarter, I would like to share a few contextual observations regarding our earnings resilience. Firstly, our fee-related earnings are primarily driven by management fees from our various investment strategies and perpetual capital vehicles. This year, nearly 85% of our fee-related revenue has been from management fees, with just 2% coming from more variable performance-related fees. We are minimally affected by changes in interest rates or spreads, as we have pointed out before. In a quarter where equity markets dropped by 16% and treasury bonds decreased by 12%, we only saw about a 1% decrease in our management fees due to market-related declines. Even as we invest in our platform for the next phase of multiyear growth, we are doing this carefully with a focus on maintaining a high level of efficiency, resulting in an FRE margin above the peer average. Additionally, our spread-related earnings are robust and perform well in various market conditions since they stem largely from hold-to-maturity, investment-grade, fixed-income assets that exceed a consistent cost of funds, which is a straightforward financial structure with considerable strategic advantages. Over the past eight years, SRE has consistently shown a 90% correlation with FRE, and historical credit losses have been lower than the industry standard, averaging only single-digit basis points annually. Furthermore, the proportion of Athene capital backing SRE generation will decrease over time, owing to an increased reliance on third-party CCAR capital through ADAV because of the appealing nature of this earnings profile to sophisticated institutional investors. Thus, it's evident that spread-related earnings are both highly resilient and attractive. As for our quarter's results, total AUM reached a record $515 billion by the end of June, representing a 9% annual increase, buoyed by strong inflows from both asset management and retirement services. Sequentially, AUM saw a modest rise, with strong inflows of $36 billion offset by $16 billion of unrealized mark-to-market depreciation—$11 billion linked to Athora—alongside $8 billion in regular outflows from both Athene and Athora and $7 billion from realizations. Our fee-generating AUM, which is less sensitive to market value changes, increased by $5 billion sequentially. It's important to note that Athene and Athora operate as spread-based businesses with assets and liabilities matched in duration, meaning that while higher rates or wider spreads may temporarily reduce AUM, they do not negatively impact profitability. Inflows from our asset management division totaled $24 billion during the second quarter, which incorporated $8 billion of financing across various strategies such as credit strategies, Accord V, Accord Plus, total return, and several yield managed accounts, along with newer funds like AAA and Asia Pacific credit. We also gained $8 billion of yield AUM and $6.5 billion of yield fee-generating AUM from our acquisition of Griffin Capital's U.S. management business, which finalized in early May. Looking ahead to the second half of the year, we anticipate AUM growth driven by approximately $20 billion of identified inflows, excluding organic growth from Athene and other asset management fundraising. These identified inflows are expected to include initial commitments for Fund X, additional third-party commitments for AAA, and a significant seed investment from Idea for our S3 platform launch, which Jim mentioned. In the second quarter, FRE came to $341 million or $0.57 per share, a 7% year-over-year increase. Fee-related revenues saw a 14% rise compared to last year, showcasing solid growth despite market challenges. Management fees totaled $522 million, incorporating $16 million from the Griffin Capital acquisition. As Jim mentioned, transaction fees reached a record high of $103 million in the second quarter. Compensation and non-compensation expenses increased sequentially due to the Griffin acquisition and higher firm headcount impacting our cost base. Heading into the latter half of the year, we have a clear pipeline for fee-related revenue growth spurred by increasing management fees, including the launch of Fund X in the fourth quarter, alongside stronger expected transaction fees in the second half from our ACS business. We also anticipate expenses will continue to rise in the latter half of the year as we approach the conclusion of our accelerated growth phase. We are confident in achieving our $2.35 per share FRE guidance for 2022, as previously mentioned during our Investor Day, which accounts for lower growth in the first half and higher growth in the second half. Looking towards 2023, we predict fee-related revenue growth will exceed 20% due to widespread momentum across our established operations as well as progress in newer growth initiatives outlined by both Marc and Jim, along with operating leverage improvements as investment spending and hiring stabilize. In our Retirement Services segment, we reported SRE of $442 million or $0.74 per share in the second quarter, resulting in a net spread of 95 basis points as a percentage of average net invested assets. Normalizing our alternative returns to 11%, as we did in the first quarter, and excluding certain notable items, SRE stood at $535 million for the quarter, equating to a normalized net spread of 115 basis points. Sequentially, our normalized net spread saw an increase of 7 basis points, mainly due to higher net floating rate income. As previously discussed, the earnings growth from rising rates highlights the counter-cyclical nature of Athene's business model, and we expect the benefits of higher rates to continue to positively impact SRE. Athene's alternatives portfolio achieved a 6% annualized return in the second quarter, which is impressive given a 66% annualized drop in the S&P 500, yielding an 11% annualized return in the first half of the year, aligning with our expected normalized returns. Athene's alternatives portfolio is well-diversified and engineered to generate equity-like returns while providing substantial downside protection. Approximately half of this portfolio is allocated to Apollo and other fund investments, which delivered a 10% annualized return in the second quarter. This strength primarily arose from Athene's investments in real estate that benefited from property-specific cash flow updates. Strategic origination platforms, which make up about a quarter of Athene's portfolio, returned 7% during the quarter, as several investments continued to perform well due to the predictable and contractual nature of the underlying assets. The remaining section of the alternative portfolio includes strategic retirement services investments, which yielded a 3% annualized return despite some drag from a public position. Industry watchers in retirement services are likely aware of an upcoming accounting policy change slated for next year called Long-Duration Targeted Improvements, or LDTI. While other firms might face significant balance sheet impacts from implementing LDTI, we do not foresee this standard affecting our results or capital levels materially, thanks to recent GAAP accounting adjustments made in conjunction with Athene's merger.

Operator, Operator

Our first question comes from Glenn Schorr from Evercore ISI.

Glenn Schorr, Analyst

We're interested in the AAA product. I have a couple of quick follow-up questions about the fee structure, liquidity, and K-1 1099. Additionally, I'm curious about the securities and at what marks a third party is involved. Thank you.

Marc Rowan, CEO

Thank you, Glenn. It's Marc. I will be cautious about what I can share, as this isn't a marketing push for AAA. However, investors can invest alongside a portfolio worth approximately $10 billion, consisting of 180 different investments that have been specifically selected for Athene over the last 12 to 13 years. Athene has produced audited financials and NAV throughout our discussions, and there are visible marks every quarter. Therefore, you should assume that everything was transitioned over at NAV. Regarding liquidity, Athene and institutional investors are agreeing not to take liquidity for up to five years. We anticipate Athene's participation will grow from around $10 billion to $20 billion over the next five years, based on the forecasts shared during Investor Day. For investors seeking more liquidity, a slightly higher fee applies, and liquidity is restricted to 5% per quarter at NAV across the vehicle. It's important to note that this is a replacement for equity, not private equity, and it is benchmarked against the S&P, with historical volatility levels similar to fixed income. I hope that answers your questions.

Operator, Operator

Thank you. Our next question comes from the line of Alexander Blostein from Goldman Sachs.

Ryan Bailey, Analyst

Actually, Ryan Bailey is speaking in place of Alex. Regarding the $13 billion that was allocated to Fund X, you're anticipating record contributions from the global wealth channel. Can you clarify how much of that $13 billion is set aside for distribution partners? Does "set aside" mean the same as a typical commitment? Additionally, it would be very helpful if you could provide some information about who those distribution partners are in a general sense.

Marc Rowan, CEO

Well, let me just say that the vast, vast majority is the institutional channel, which we know and which has historically been part of us, a non-material amount was the non-traditional institutional channel or the global wealth channels. There's four parts to that. But historically, whenever we've gone out to the global wealth channel, they've all come back with commitments well in excess of their allocation. So the big picture is really $13 billion. The big picture is really the institutional business that has driven us. Now certainly, as we talk about Global Wealth playing a larger part of our fundraising from 5% to a larger portion over time, they are participating in Fund X, but it's really an institutional story like it always has been.

Operator, Operator

Thank you. Our next question comes from the line of Craig Siegenthaler from BofA.

Craig Siegenthaler, Analyst

Good morning, everyone. My first one is on cash flow. I'm curious how much capital did you dividend up to Apollo from the three at the insurance entities in relative to the $442 million of spread-related earnings?

Martin Kelly, CFO

Hi Craig, it's Martin. So we're using the same frame that we outlined last year, which is $750 million per year. So we're just clipping away that each quarter, Athene is clearly very profitable in generating cash flow, but it's also growing significantly. And so we would expect that level of cash flow upstreaming to continue at current levels. And we'll evaluate that from time to time. But Athene has massive growth opportunities in front of us, and that's contributed to the $24 billion of inflows so far this year.

Marc Rowan, CEO

Craig, assume it's just evenly over four quarters.

Operator, Operator

Thank you. Our next question comes from the line of Patrick Davitt from Autonomous Research.

Patrick Davitt, Analyst

Good morning. Thanks. My question is on capital. I guess, Marc, do you still view the stock as the best use of capital here and through that lens as 2Q? Is the 2Q run rate a good guide for what you can do per quarter as long as the price is low?

Marc Rowan, CEO

Look, I don't want to think we're unique. Every management team thinks their stock is undervalued. We particularly think our stock is undervalued, and we had the flexibility this quarter to buy it back, and we did. As I've said previously, one needs to earn the money to spend before you get to spend it. So we have a framework that we think about in terms of capital allocation, which Martin went through, which is roughly $5 billion for the existing dividend, $5 billion allocated to growth and $5 billion, which we have the potential to be flexible on. And clearly, at these current levels, as there's no lack of unanimity in the room, our stock is the best place for that capital.

Operator, Operator

Thank you. Our next question comes from the line of Brian Bedell from Deutsche Bank.

Brian Bedell, Analyst

I have several questions regarding Triple A, but I will limit myself to a couple for now and return to the queue if they remain unanswered. First, can you clarify the investment strategy for this? Is it similar to the Athene portfolio mentioned on page 16, targeting approximately an 11% normalized return? Additionally, if that’s not the case, how might this be managed differently, such as through a dynamic allocation feature? Lastly, could you discuss the performance fee structure? Specifically, how should we consider performance fee-related fees if this grows to become the largest fund, and how does this differ between institutional and retail classes?

Marc Rowan, CEO

Let me start in reverse. It's not very different. What's interesting here is our approach to this. This is a fund that we started down the road to create for high net worth. And the concept here was to really do something that the market had never seen before. No capital calls, no J curve, $10 billion of aligned capital, some liquidity for high net worth, no liquidity for institutions, no two layers of fees. Athene as a large institutional investor, you should assume strikes the hardest bargain and is generally the lowest fee payer. So we start with the notion that we should not charge fees on top of that. And that the investor should have the single best experience. The way that manifests itself in terms of positivity for our business is, we had $10 billion of capital that is now $15 billion of capital, which is accelerating our investments in platforms accelerating our investments in co-invest, accelerating our investments in new funds. And the underlying economics are simply passed through. It's a flywheel. This is how we scale our business. What was interesting? Although we've done a product for retail, along the way to the retail launch, three very large institutions thus far, have concluded, that this actually meets all of their needs. Diversification by vintage and by product and no capital calls, no two levels of fees. And so we are fortunate to be able to launch the product with $15 billion of commitments, $10 billion in-house and $5 billion from three large institutional investors. I'm very optimistic as to how this goes. But like every retail product, it's now up to us to implement and to prove success. I also like that our benchmark here is not private equity. Private equity, as I've said previously, is a fabulous business, but it is not infinitely scalable. What I like about this, is we have lots of opportunities to scale it, because the return targets while I'm not advertising are much more consistent with premiums to S&P 500 and premiums to where we have assumed a normalized rate of return rather than something that begins with a two-handle or high-teens. So hopefully, that's sufficient.

Operator, Operator

Thank you. Our next question comes from the line of Rufus Hone from Bank of Montreal.

Rufus Hone, Analyst

Oh hi. Good morning. Thanks for taking my question. I wanted to come back to the Global Wealth business, and I appreciate your comments on AAA. You've mentioned one to two new products per quarter for several quarters, and I was curious about how that pipeline looks. What products are you particularly excited about beyond AAA? Thank you.

Martin Kelly, CFO

Thank you for the question. During our Investor Day last year, we discussed our products in two main categories: perpetual products and episodic products. At that time, we had three to four products, including one in the perpetual category, Apollo Debt Solutions, and a few others in episodic. Now, in 2020, we have nearly nine products in the perpetual category, with several more in the pipeline. Additionally, following the Griffin transaction, we acquired a couple of vehicles, which has contributed to our expanding product range. We're committed to executing on proven strategies that generate demand and yield, while also broadening our approach. I'm very pleased with our progress in wholesaling, product development, and sales agreements. The product lineup is truly growing and diverse.

Marc Rowan, CEO

Again, it's Marc. I'll start at the rest. The answer is no. We run a matched book and we offset the liabilities that we take on in the retirement services business with fixed income at roughly the same time we take them on. Changes in credit spreads do not matter. The initial ADP was for $3.25 billion. ADP has performed extraordinarily well. As I sometimes joke with some of you, those in particular, who have had a more negative view of retirement services. It's such a negative business that investors compete and pay us fees to be able to invest in retirement services. We expect to go out and raise a successor to ADP fees and where ADP won based on the success and performance of ADP-1, which is well ahead of the benchmark promised investors and would expect that the fund would be somewhere in the $3.5 million to $5 million range, consistent with how we see growth in the retirement services sector in the US.

Operator, Operator

Thank you. Our next question comes from the line of Chris Kotowski from Oppenheimer.

Chris Kotowski, Analyst

Mine were asked and answered. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Adam Beatty from UBS.

Adam Beatty, Analyst

I want to ask about organic growth in Retirement Services. The business update you pointed out, the historical kind of ability and willingness to shift the emphasis among the four different channels based on prevailing conditions. So assuming your overall target is still good for this year. I'm just wondering, given the distinct backdrop that we have right now, where you're seeing opportunities and where maybe you're hanging back a little bit more? Thank you.

Marc Rowan, CEO

The two strongest channels are the retail fixed annuity channel, which is performing exceptionally well, with applications up 100% year-over-year and record results nearly every week. We're also observing significant growth in pension group annuities due to the recent increases in rates and spreads, allowing entities to close out older retirement plans more easily. We're monitoring this closely and have seen a strong first six months. Additionally, we're making good progress in reinsurance, especially on a flow basis. The one area that's not performing well is the FABN market, affected by higher rates and spreads. However, there are plenty of opportunities, and our numbers far exceed last year's record, demonstrating strong performance throughout the industry. This year has been positive for the entire sector, though those without excess capital may struggle to fully capitalize on it.

Operator, Operator

Thank you. Our next question comes from the line of Patrick Davitt from Autonomous Research.

Patrick Davitt, Analyst

My follow-up was asked. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Brian Bedell from Deutsche Bank.

Noah Gunn, Global Head of Investor Relations

Brian?

Operator, Operator

One moment, while the participant’s line loads. His line will be opened momentarily.

Noah Gunn, Global Head of Investor Relations

We can move ahead to the next question.

Operator, Operator

Our next question comes from the line of Glenn Schorr from Evercore ISI.

Noah Gunn, Global Head of Investor Relations

Glenn?

Operator, Operator

Pardon me one moment, while his line loads.

Noah Gunn, Global Head of Investor Relations

Maybe that’s a good place to end if we’re experiencing technical difficulties. On behalf of our team, I’d like to thank everyone for joining us this morning and for your continued interest in our business. If you have any follow-up questions about anything discussed on today’s call, please feel free to reach out to us. We look forward to speaking with you again next quarter. Thank you, everyone.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.