Earnings Call Transcript
Apollo Global Management, Inc. (APO)
Earnings Call Transcript - APO Q4 2021
Operator, Operator
Good morning, and welcome to Apollo Global Management's Fourth Quarter and Full Year 2021 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 be opened for questions. 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 the 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 in 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
Great. Thanks, operator, and welcome again, everyone to our call this morning. Our fourth quarter and full year 2021 results reported earlier today reflect Apollo's financial results on a standalone basis, before consideration of our recent merger with Athene, which closed on January 1. That said, we will briefly touch on key highlights from Athene's results, which were issued separately this morning. In addition, we posted a financial supplement on our website, which updates our fourth quarter and full year results in our new post-merger financial construction. Beginning next quarter, this will be our primary view, including contributions from our three new segments, and will illustrate our combined earnings power. Fee-related earnings reached a quarterly record of $309 million or $0.67 per share in the fourth quarter and $1.2 billion or $2.68 per share for full year 2021. In terms of distributable earnings, we reported $1.05 of DE per share for the fourth quarter and an annual record of $4.56 per share for full year 2021, which is more than double the level we earned in 2020. Joining me this morning to discuss all the business momentum we are seeing at Apollo and our results in further detail are Marc Rowan, CEO; Jim Zelter, Co-President; and Martin Kelly, CFO. We look forward to addressing all your questions following the conclusion of our prepared remarks. And with that, I'll now turn the call over to Marc.
Marc Rowan, CEO
Thank you, Noah. Good morning to all. Thank you for spending time with us. As I often say, I'm fortunate to lead a company in an industry that gets better every day. Our industry is driven by powerful trends, demographics, generational transfer of wealth, low rates and the extreme correlation and indexification of equity and fixed income markets. I am even more fortunate to lead a company with tremendous momentum and with a unique business model in the alternatives industry. 2021 was a transformational year for Apollo. AUM is a record; fundraising, a record; modernizations, a record; origination, a record; 424 people joined our platform, another record; and turnover was the lowest it's been in a very long time. We achieved 15% year-over-year FRE growth without any sizable inorganic activity and without a flagship fund, which, as all of you know, is in the cards for 2022. As excited as I was for 2021, 2022 should be even brighter. At our very detailed Investor Day in October, we communicated a strategic vision and financial plan. In just a few short months, we have made significant progress against that plan; recall the three pillars of that plan or the three key bets as we like to say. One was the growth in our retail business and retail franchise, which I will touch on, and Jim Zelter will spend more time on, the second, origination, which is the capacity to originate investments and, therefore, continue to provide above-average rates of return per unit of risk for our clients and the third, in our Capital Markets segment. Let me take a second and just briefly touch on each of those three bets. In origination, we originated $37 billion in the fourth quarter. We're now running well over $100 billion on an annual basis. Recall why this is important, our market sometimes loses sight of what's in short supply. Capital as a general matter is plentiful, and it is assets that offer appropriate risk rewards that are in short supply. So therefore, we are incredibly focused on growing our capacity to originate assets that offer attractive risk rewards. They are, in fact, the limiter on our growth rather than the capacity to raise money. Every attractive asset that we originate across our platform has a home in a fund, in a co-invest, on a retirement services balance sheet or through syndication. In short, it is never capital that is in short supply, it is assets, and we are micro-focused on scaling origination. Platforms, which are recurring originations, are a very significant portion of our strategy. In the fourth quarter alone, we added Aqua Finance in Consumer, Petros PACE Finance in solar, Alliant Inventory Solutions in partnership with BNP, and the momentum continues. No one is doing what we are doing at the size and scale, and we've talked a lot in our industry about permanent capital. I'm much more interested in talking with you about permanent origination. In Global Wealth, as you know, we announced the acquisition of Griffin. Griffin Capital is a meaningful accelerator to our wealth platform. We also made, during the quarter, strategic investments in two technology companies to facilitate the growth of our distribution businesses. CASE and ICAP are two of the leading technology platforms, helping financial advisers, access alternative strategies. Tech-enabled distribution is a must-have for anyone hoping to serve this market. We also saw early product success in the channel. Our BDC, Apollo Debt Solutions, is off to a very strong start, which Jim Zelter will take you through. I continue to believe that democratization of finance is one of the most powerful tailwinds driving our platform. If you think about our industry and us, in particular, we, in the alternatives industry, have spent better than 30 years, on the cutting edge of creating products and services, primarily for large global institutions who are not taxpayers. We have an opportunity now as a result of increasing sophistication of retail investors, increasing technology, democratization and legalization of opportunity and this massive generational transfer of wealth, to take that brainpower and focus on creating products and services that are bespoke for this particular channel. Early iterations of serving this channel have been very successful, but really are the first step. They are nothing more than the institutionalization of products that already exist. I view the real steps here as creating unique products and services that are designed for this channel. And given our experience with Athene, which you will hear, we have tremendous insight into what it takes at a granular level to make be successful in this channel. On Capital Solutions, again, Jim will go into more detail. Suffice it to say, 2021 revenues in Capital Solutions were up 20% year-over-year. And as you know, our plan that we've communicated is a doubling of capital solutions revenue over the next five years. Significant landmark transaction, which I know Jim will touch on in the fourth quarter, is SoftBank, which will help you imagine where we're going with Capital Solutions. Noah touched briefly on our quarterly reporting. This is the last quarter that we will report on a standalone basis with the Athene merger having closed on January 1. Athene had an awesome 2021. As good a year as Apollo had, Athene had an even better year: record profitability, earning more than $2 billion; record organic inflows, more than $37 billion of organic inflows, not only record inflows across all four of its business channels, but the returns at which this new business was underwritten, significantly exceeded the compelling mid-teens target that we have. With the merger closed and collaboration and creativity ongoing, I see nothing but upside from the combination that closed just a month ago. I'd be remiss if I didn't touch on the market. Everywhere I go, people want to understand the impact of current market trends on our business. My standard answer, if you think about the environment, we've been in for the past 10 years, purchase price has not mattered. The more risk you took, the more outrageous, generally the higher the payoff. We have seen a significant correction across equity markets as a result of revaluations. We have also seen a significant change in fixed income markets as a result of Central Bank activity. Our platform is built for purchase price matters. We have achieved amazing results over the past decade in a market that has not necessarily been kind to our strategy and where our patient value-oriented, disciplined approach to capital deployment has not been rewarded. I believe we are in the right place at the right time. I believe the 2022 fund raise for Apollo 10 will be very successful as we offer our large institutional clients a different approach to how to get return in a market that seems to have lost a bit of the go-go spirit. Let me pivot to merger and governance, as I get ready to hand over to Jim Zelter, who is chomping at the bit to take over. The merger with Athene closed on January 1. The next chapter is very exciting, low risk of execution, as we know each other incredibly well, having worked together for the past 12, 13 years. We are adding the 1,400-person Athene team to the roughly 2,000 Apollo employees; pro forma 3,500 total employees, approximately $40 billion of market cap. In addition to the Mira merger, this was an opportunity for us to complete the governance changes that we have hinted at and been very explicit at throughout the last year. We are one share, one vote. We are a two-thirds independent Board. We have an independent Chair. And we have all of the requisite requirements to be eligible for broad index inclusion. Now let me conclude. I often say and I started our Strategy Day by really pointing out that culture beats strategy every day. We have built an incredible culture. The marketplace understands the long-term benefit of what we are building and is helping us to win the war on talent. People are attracted to the clear strategic vision, the authentic nature of the people they meet and our cultural values. As I suggested, we added 424 employees in 2021. While very exciting, we're not likely to repeat that in 2022, having made significant progress. These are senior hires across global wealth, origination, finance, Asia Pacific. We have incredible momentum going into 2022. The team is eager to execute the plan we have articulated for you. We're excited about the next chapter and a more profitable Apollo and ready to take the hill. Let me now turn it over to my partner, Jim Zelter.
Jim Zelter, Co-President
Thanks, Marc. 2021 was indeed a banner year for Apollo, as Marc described. We remain squarely focused on driving excess returns across the spectrum, from fixed income replacement up to private equity, in order to deliver the investment alpha that our clients entrust us to provide. Our record deployment activity exemplifies our ability to source recurring transactions at scale as well as the expanding diversification of the platform. In our Private Equity business, we committed and invested more capital over the last two years than in any other period in our history, totaling $20 billion. We believe we can deploy capital at a similar rate in 2022, especially, as Marc described, the recent market volatility persists. Additionally, our committed but unfunded pipeline ended the quarter nearly $8 billion, primarily comprised of Lumen Technologies and the Venetian transaction. Our near-term pipeline of potential transactions remains strong with Fund IX 78% committed at the end of the first quarter, and we have approximately $5 billion of dry powder to commit before the management fees from Fund X turn on. More recently, with the rotation from growth to value over the past several months, Apollo's vision itself as a solution provider in the marketplace, providing a differentiated tool kit to our clients. The recent dislocation and heightened volatility should create attractive capital deployment opportunities across numerous investor areas of the firm. Our hybrid value funds, the credit franchise, broadly speaking, and our partnership with Motiv allow us to provide creative, flexible solutions across the capital structure for companies in need. Moving on to debt origination. Total originations surged during the fourth quarter, as Marc said, reaching $37 billion. The uptick in fourth quarter origination volume was driven by strong high-grade alpha, middle market direct lending and commercial real estate volumes. Within high-grade alpha, a strategy where we can showcase our abilities as a solution provider, we generated particularly strong activity. In one notable transaction, we completed a $4 billion loan to SoftBank, secured by their second Vision Fund. Our ability to deliver this magnitude of capital in a relatively short time frame via discrete bilateral negotiation is exactly why our clients partner with us. You should expect to hear more about these types of large-scale transactions as our platform continues to expand. Higher levels of origination volumes are also driving higher transaction fees in our Capital Solutions business. Fourth quarter and full year fees of $94 million and $298 million, respectively, reached new heights. And it's worth noting that we completed approximately 80 ACS transactions in 2021, which is double the volume we created a year prior. As Marc touched on, we announced several new origination platform investments over the past few months that will help grow our supply of recurring origination volume. Importantly, Athene funded the equity commitment in all three of these investments, as part of their normal course investment strategy, demonstrating the capital efficiency of our model. One, we announced our pending acquisition of a controlling stake in consumer lender, Aqua Finance, which will extend our access to quality consumer loans. In 2021, Aqua originated nearly $2 billion of loans in the consumer arena, which represents a double over the past three years. We also announced and closed our acquisition of Petros PACE Finance, a platform that provides significant deployment opportunity for Apollo and Athene to support clean energy real estate transactions. PACE has originated over $700 million in long-term fixed rate financing since 2016, and we expect rapid growth in that sector as the market expands and we confront sustainable construction and regulatory climate mandates. Finally, an important transaction was our strategic announcement with BNP Paribas to create Eliant inventory solutions. Eliant provides domestic and multinational companies with strategic and responsive inventory capital solutions to better optimize their supply chain and balance sheets. Backed by strong client demand at launch, we expect the platform to generate a multibillion-dollar level of annual flows beginning this year. These three platforms really are great examples of our broader fixed income replacement vision at work. While we are excited about the progress we've already achieved to broaden our origination, there is still significant runway to scale our existing platforms and fill in additional growth white space. At the macro level, we believe the evolving interest rate backup will create tactical opportunities to position our client portfolios into more favorable higher-yielding assets. As the market confronts a potentially higher rate environment, financial conditions are indeed tightening and risk premiums are increasing. For the last several years, there have been many concerns about our ability to generate attractive returns in a perpetually low-rate environment. However, we always found ways to be successful and leaned into origination, and now we have an expansive ecosystem ready to capitalize on a market with potentially higher rates and certainly higher risk premiums. As we've said before, the fixed income replacement trend is just getting started, and we are certainly well positioned regardless of the rate environment. Moving on to monetization activity. We had another strong year of realizations, totaling $4 billion, including more than $3 billion from our Private Equity platform. For the full year, Private Equity realizations reached an annual record of $19 billion, as Fund VIII and increasingly Fund IX are in harvesting mode. Looking forward, we expect our realization super cycle to continue. That said, if the current market correction persists, some of our planned term realizations may be pushed out to later in the year. Turning to investment performance. We had a strong year of performance across our entire franchise. Our Private Equity portfolio appreciated 48% in 2021, outperforming the S&P by over 20%. Additionally, our flagship fund performance remains exceptional, with Fund IX generating a gross IRR of 48% and a net IRR of 30%. Fund IX's portfolio is still relatively young, and we believe there is a lot of embedded value still to come. Our inaugural hybrid value fund continues to perform very well, generating a growth of 29% and 23% net. In credit, our portfolio saw 1.6% of gross appreciation in the fourth quarter and more than 10% for the full year. Finally, our structured credit debt origination strategies had particularly strong performance, both outperforming their respective benchmarks by a remarkable 1,100 basis points in 2021. In terms of capital raising, total inflows of $24 billion in the fourth quarter were strong, bringing full year inflows to $67 billion. As Marc mentioned, we raised a record amount of capital from third-party clients in a non-flagship fundraising year with $23 billion of total inflows. Athene added $37 billion of inflows, including 9 in the fourth quarter alone. Third-party fundraising in the fourth quarter totaled $8 billion, increasing from $5 billion average pace through the third quarter. Additionally, fourth quarter fundraising included healthy inflows from Accord plus EPF IV, and our second infrastructure fund, which held its final close in the quarter. Importantly, we launched the fundraising for Fund X in January and are encouraged by the early reception. We feel confident in raising our targeted $25 billion in capital and think our differentiated investment strategy, grounded in value while embracing innovation resonates particularly well in this current market backdrop. We successfully launched our nonlisted credit BDC, Apollo Debt Solutions, in November with a single platform in Asia and Europe, and expanded distribution to the domestic platform in the beginning of January. Early reception of our marketing efforts has been extremely positive, and we raised over $1 billion of equity proceeds to date since product launched two months ago. When our exclusivity period ends in March, we will broaden distribution to other wire houses, several RIAs and at the independent broker-dealer channel via our strategic distribution partnerships. Additionally, we've invested heavily in product development and are currently working on several other funds tailored for the mass-affluent market. In December, we did announce the agreement to acquire Griffin, which is strategically important in our accelerating our multipronged five-year global wealth strategy. A year ago, we were more limited in our global wealth capabilities, but with the launch of ADS as well as Griffin, we now have proof of concept on product and distribution capability. When Griffin closes, which is expected to occur in the first half of this year, we will have roughly 130 people working across the platform. With Griffin specifically, we expect to broaden our reach in the US wealth market and among independent broker-dealers, providing us with a new foothold in that channel. We're continuing to add the resources and capabilities across various retail distribution channels in conjunction with the Griffin team. In terms of our outlook for 2022, we feel comfortable meeting or exceeding our $80 billion organic inflow target that we communicated in the fall. We are seeing a robust pipeline in Athene and momentum across third-party fundraising initiatives, including a strong start at ADS, as I've previously mentioned; and incremental flow at Griffin gives us great comfort. Looking back to 2021, we couldn't be more excited about the evolution of the franchise. We continue to expand the dialogue with our global investor base and continue to provide solutions to companies seeking to raise capital. We have leading returns in flagship Private Equity. We've launched nascent strategies with strong early performance and client traction, including hybrid value in the infrastructure equity business. Our yield platform is expanding along with the continued build-out of our front-end origination platforms. We're syndicating more dollars alongside a growing capital solutions business, and we're seeing increased demand for our third-party retirement services. We are excited to demonstrate meaningful progress against our goals, which we laid out in the fall. With that, I'll turn it over to my partner, Martin, who will discuss our financial results.
Martin Kelly, CFO
Great. Thanks, Jim, and good morning. I'll provide a brief overview of our standalone results and then bridge to our 2022 outlook for the combined businesses. Our full year after-tax DE of $2 billion was very strong and roughly doubled from 2020 levels, as Noah mentioned, driven by a sizable step-up in PE realization activity and mid-teens FRE growth. Management fees increased 14% year-over-year, which included more than 20% growth in our credit real assets businesses and transaction fees were up 19% year-over-year, while fee-related expenses grew 19%, reflecting our comp and non-comp-driven investment for growth. Our full year FRE margin of 54% was in line with our expectations. In mid-January, we filed a financial supplement containing historical information for our new post-merger segment reporting. In late January, we filed an 8-K outlining merger-related updates and certain financial items. Beginning in the first quarter of 2022, we will report results for three operating segments: asset management, retirement services, and principal investing, with fee-related earnings, FRE; spread-related earnings, SRE; and principal investing income, PII, as their primary performance metrics looking forward. Strong results by Apollo and Athene in 2021 provide us with momentum as we head into 2022, positioning us well to achieve our five-year targets. As previously communicated, we expect after-tax DE of approximately $3.3 billion or $5.50 per share in 2022. We expect approximately 90% of these earnings to be comprised of highly stable and recurring FRE and SRE. In our Asset Management segment, we expect the following trends to drive our FRE in the year ahead. Fee-related revenues should see attractive growth in 2022, with management fee growth around the mid to high-teens level, and our plan suggests transaction fees growing at a faster pace than they did in 2021. In terms of fee-related expenses, as you know, we have been making significant investments in talent and infrastructure to drive higher FRE growth and capture the next significant leg of growth we believe is attainable. We've made many great additions across our platform and continued to attract high-caliber individuals. We are managing this growth in the context of the glide path we've laid out, which is for our comp ratio to start moving from roughly 30% toward our longer-term target of 25% over the next five years. On the non-comp side, we are in the midst of rebasing in 2022 as we absorb the infrastructure costs, including technology and occupancy of supporting our larger team. Putting the pieces together, we expect an FRE margin of approximately 54% to 55% in 2022, putting us on a path higher towards our 60% plus goal by 2026. We expect this will drive at least $1.4 billion of pre-tax FRE in 2022, or $2.35 per share. In our Retirement Services segment, we are on track to deliver our 2022 objectives outlined at our Investor Day. We expect low double-digit growth in net invested assets, driven by the healthy organic growth expectations that Jim mentioned. From these assets, less fully loaded funding costs and overhead, we expect the segment to generate a net spread of approximately 110 to 115 basis points. This spread translates to pre-tax SRE in excess of $2 billion in 2022 or approximately $3.35 per share. Embedded within this earnings profile is an expectation for a normalized return on Athene's alternative investments of approximately 10%, following a particularly strong return in 2021, amidst a robust market backdrop. In our Principal Investing segment, we believe we have a favorable tailwind at our back from having two flagship Private Equity funds in harvesting mode. So as Jim mentioned earlier, the timing of realization can be impacted if the market correction persists. Our best expectation for the income contribution in PII heading into a new year is to align around our forecast over a multiyear horizon. This equates to approximately $500 million of pre-tax income or $0.80 per share on average over the next five years. You should think of us as net beneficiaries of a rising rate environment. Jim mentioned the opportunities created by a higher-rate environment, which we believe will benefit FRE. The only part of our revenue that is susceptible to a decline from rising rates are management fees earned from net asset value rather than committed or invested capital. Historically, the most notable pool of assets with this basis was Athene's fixed income assets. Following a recently agreed-upon adjustment to the investment management agreement with Athene, our basis for earning management fees will now be book value for the vast majority of Athene's assets. This change will serve to mitigate management fee volatility from changes in rates or spreads. Further, with regard to potential SRE impacts from rising rates, approximately 20% of Athene's portfolio is in floating rate securities. While there are some offsets, we would expect a 25 basis point parallel shift up in the curve to drive an incremental $30 million to $40 million of annual SRE, representing low single-digit accretion on distributable earnings. Turning to capital allocation, we expect to generate $15 billion of capital for investment over the next five years as we discussed at our Investor Day, which is illustratively earmarked as $5 billion of capital to fund our expected annual base dividend of $1.60 per share, $5 billion of capital for dividend increases, opportunistic share repurchases and another $5 billion of growth capital. The impact of the latter $10 billion is not reflected in our base targets. While we will evaluate opportunities on a case-by-case basis, we will most likely look to deploy the majority of the growth capital towards strategic ventures in the near term that will accelerate FRE growth. We declared a dividend of $0.40 per share in the fourth quarter and have allocated approximately $1 billion to fund the annual dividend under this policy in 2022. In conjunction with the merger close, we announced a $1.5 billion opportunistic buyback authorization, along with another $1 billion for equity immunization. This new repurchase program provides additional flexibility to return capital to shareholders and drive accretion on an open-ended basis. We intend to prioritize strategic growth investments given the pipeline we see, many of which we expect will drive additional growth in fee-related earnings above and beyond our base plan, recent examples of iCapital Chase and incremental equity investment in Athora and our all-stock acquisition of Griffin. To conclude and punctuate our overall message this morning, our business is firing on all cylinders. Our fundamental business drivers are reaching record levels, and we're making huge strides in pursuit of our strategic goals. We had a very busy and successful 2021, and we're well positioned to execute on our clear strategic vision and deliver results for our shareholders and clients. With that, I'll turn the call back to the operator for questions.
Glenn Schorr, Analyst
Hi. Thank you. Just to clarify, did you mention that the FRE is at least $1.4 billion, which represents a 17% growth in 2022? I want to make sure I understood correctly.
Marc Rowan, CEO
That's right, Glen. Yeah, $1.4 billion, which is $2.35 per share.
Glenn Schorr, Analyst
Okay. Cool. I guess a lot of people are asking on insurance, so let's start there. I guess it's a twofold, and it has to do with S&P and regulation. So S&P is considering changing some of its capital rules, specifically for A and lower-rated securities and structures. So what impact would that have on the excess capital position you've been talking about at Athene? And then my as well, while we're talking insurance, to talk about any changes that you think might be brewing in terms of private equity ownership of life insurance, and whether or not there are changes coming. So I appreciate the twofold question.
Marc Rowan, CEO
Great. It's Marc. I'll address that, Glenn. Over the past year, S&P has upgraded us to A+. We maintain significantly more capital than most others in the industry, especially in terms of excess capital and reduced leverage. S&P is currently updating its model for the first time in a decade, and there's an ongoing dialogue. It's too early to determine if there will be changes to the excess capital. Personally, I’m not worried about it. Ultimately, we are in an industry that lacks excess capital— we are among the few who have maintained it. If you look at the capital raised in the US and Europe over the past decade, we've raised a substantial amount in the insurance sector. Any factors that pressure capital usually don't affect us. However, I don't anticipate significant outcomes from S&P's review, but it's still in the early stages. Regarding private equity in insurance, we have been on this journey for over 12 years, investing heavily along the way. Those who wish to follow in our footsteps will soon realize that this is not merely a trade but a long-term commitment. Building the necessary infrastructure to navigate a regulated environment is essential, as all asset management businesses are regulated. Aflow of capital into the industry is typically beneficial, but funds with limited lifespans investing in long-term assets are usually seen as a negative. New entrants who grasp that increasing exposure to subordinated securities is the main risk to an insurance company’s balance sheet will learn that this approach is unlikely to gain widespread acceptance. Jim mentioned fixed income replacement, which means maintaining the credit quality of the business while seeking to earn higher spreads, and I believe this is the right approach for us and likely for many others. However, I expect many challenges for third parties as they work to navigate this landscape.
Glenn Schorr, Analyst
I'll sure left for the next time. Thank you.
Operator, Operator
Thank you. Our next question comes from the line of Bill Katz from Citi. Your line is now open.
Bill Katz, Analyst
Thank you very much. Marc, I have a question for you. With the forward curve expectations flattening and credit spreads beginning to widen, there's a natural concern regarding a potential credit cycle. Could you share your thoughts on how we're positioned for this and what the advantages and disadvantages might be? Also, Martin, I just want to clarify that you mentioned a base earnings figure of 5.70, excluding PAI. Did I hear that right? Thank you.
Marc Rowan, CEO
So, Jim and I will tag team on credit. I'll start by pointing out that. Look we've been in a decade-long period where taking risk has been rewarded. And I didn't just mean my comments for equity. I meant for credit as well. We, as a firm have generally not sought to position our portfolio that way. We have almost always been senior secured. And the way we have earned excess return is through origination or taking some amount of liquidity risk rather than subordination risk, credit risk or duration risk. I believe we are well positioned in the portfolio for widening of rates and for credit cycle. And I don't want to belabor it, because I think Jim lives this every day. So, I'm going to flip it over to Jim to follow-up.
Jim Zelter, Co-President
Yes, I want to emphasize that as we explore these origination platforms, there are still questions about what we mean by fixing replacement. Looking at the Wheels and Donlen platform that we have aggregated over the past year, this company has been in business for 50 years and has proven its resilience throughout economic cycles with very few defaults. They manage a significant auto fleet-finance business for many well-known consumer brands. Similarly, our inventory finance partnership with BNP is enabling access to capital that previously was tied up on bank balance sheets. We have a strong understanding of high yield, loans, and distressed markets, and we are recognized as a leading player in that space. While we may see some widening in spreads within those sectors, that situation does not affect Athene and our regulated balance sheets. We have maintained a strong investment profile in those markets, which is evidenced by our low default rates.
Marc Rowan, CEO
Yes. And Bill, the quick answer is yes. The numbers we're underlying today are consistent with Investor Day. We're on track. We're fully in line with what we laid out in October. So it's the numbers, $2.35 and $3.35 on a pretax basis.
Bill Katz, Analyst
Okay. Thank you.
Operator, Operator
Thank you. Our next question comes from the line of Brian Bedell from Deutsche Bank. Your line is now open.
Brian Bedell, Analyst
Great. Thanks. Good morning everyone. To start off, I’d like to discuss our spread-related business in terms of rate sensitivity. Could you provide some insight on whether that sensitivity is linear with a 25 basis point change? Additionally, if the Fed were to tighten more aggressively this year, how would that affect our P&L, particularly if we anticipate around six rate hikes next year?
Marc Rowan, CEO
Yes, yes. Brian, it's pretty much linear. So, there's some floaters with floors, but we're above the floor. So think of it as 25, now 100 is four times 25 on that rate sensitivity. And in terms of how quickly that pulls through into earnings, about half of that is in three-month LIBOR and the other half is split between shorter and longer, one model and six equivalents.
Brian Bedell, Analyst
How many rate hikes are you assuming for your 2022 guidance on SRE?
Martin Kelly, CFO
We don't focus on predictions about interest rate hikes. Instead, we concentrate on the current forward curve. Our business operates on a day-to-day basis rather than speculating on whether there will be three, six, or seven hikes. This approach is more relevant to macro investors. For the past several years, we have maintained a floating rate exposure and we are duration matched on our overall assets and liabilities. Therefore, we are not making bets on interest rates, but we do have a natural hedge due to our floating rate exposure.
Brian Bedell, Analyst
Got it. Okay. That's good. Regarding the retail strategy with Griffin, can you discuss the integration after the closing and as we approach later this year and into next year? Specifically, are you planning to run your retail strategy primarily through that entity, or will they be more integrated into the Apollo retail wealth distribution platform? Additionally, could you provide insights on the percentage of fundraising you expect to come from the retail side?
Martin Kelly, CFO
Sure. As we mentioned during the announcement, Griffin will be fully integrated into Apollo. We have a complete acceptance rate for all the individuals we have brought on board. At Investor Day, we presented a five-year plan aiming for nearly one-third of our fundraising to come from that channel. Overall, this likely accelerates our timeline by about 18 to 24 months. Additionally, we have taken on a $5 billion real asset vehicle with a solid track record and a newer credit product for the independent channel, which has not received much attention alongside the distribution. These aspects are definitely advantageous. We are realizing that it's not merely about the individuals; it's about the numerous selling agreements and compliance agreements, as well as the marketing infrastructure needed to launch and announce a new fund, which they have successfully done for 20 years. We are extremely optimistic about this development. When we reflect on where we stood 12 to 18 months ago, it's a significant acceleration. We clearly communicated our objectives in our November and October meetings, and we've made considerable progress. The next question likely concerns our product direction. Marc outlined this, but it's essential to note that many in the industry are simply repackaging institutional products for the global wealth channel, and we intend to do the same. We have a solid track record and a strong brand across equity, hybrid, and credit areas, making us a formidable competitor. Furthermore, what Marc highlighted, and which excites us and resonates across our platform, is the tax efficiency of these products. Although it's still early, there hasn't been much focus on high net worth individuals regarding tax efficiency, particularly with yield products. We are eager to leverage the intellectual capital gained from Athene and their distribution and product packaging, integrated with Apollo's offerings. We believe the future holds significant promise in this collaboration.
Brian Bedell, Analyst
That’s great color. Thank you very much.
Operator, Operator
Thank you. Our next question comes from the line of Michael Cyprys from Morgan Stanley. Your line is now open.
Michael Cyprys, Analyst
Hi. Good morning. Thanks for taking the question. Maybe just continuing with the retail theme. I was hoping we could dig in a little bit more on the new private BDC that you guys launched. Maybe you could talk a little bit about how different or similar it is from an existing BDC that you guys have had for some years that is publicly listed. I guess to what degree is there any sort of overlap with folks that are overseeing the BDC that you've had in terms of investment professionals? Maybe you could talk about the investment strategy, how it differs. And how big of an opportunity could this be with the new private BDC that you guys have? How big could that get?
Martin Kelly, CFO
We have been very clear over the past three years about our focus on large-cap direct origination, especially in 2019 and 2020. The COVID-19 pandemic has also given us the opportunity to advance this strategy. At our Investor Day, we highlighted the significant increase in our billion-dollar commitments: just a few in 2019, around 20 in 2020, and more than 30 in the last year. Responding specifically to your question, the credit universe is quite vast. Our traditional business involves mid-cap lending, and we have a strong history as a middle-market lender, which is what our AINV strategy focuses on today, with considerable overlap among our teams. We manage our credit business with an integrated approach and emphasize that ADS will mainly center on large-cap sponsor origination and large-cap corporate origination. We believe it is important not to operate in silos, but rather to function as an integrated platform offering a variety of tools to sponsors, both large and small. This includes not just leveraged finance loans, but also options like fund finance, GP finance, and others. In summary, our strategy with ADS is clearly aligned with a large-cap focus, which we see as the way forward considering the current market dynamics and the evolving nature of the syndicated market, all working in concert with our AINV team.
Michael Cyprys, Analyst
Great. Thank you.
Operator, Operator
Thank you. Our next question comes from the line of Finian O'Shea from Wells Fargo Securities. Your line is now open.
Finian O'Shea, Analyst
Hi. Good morning, everybody. Can you discuss the opportunity for platform acquisition, such as Aqua and PACE this quarter? Specifically, how attractive is that category compared to other components of high-grade alpha and what is the price you need to pay for it? Additionally, how much of that opportunity is still available for you to pursue through acquisition?
Marc Rowan, CEO
It's Marc, and I'll start by outlining our approach, then Jim will elaborate as needed. Origination can be broken down into three components. The first involves outreach efforts aimed at large companies within our expansive ecosystem. Our private credit platform is the largest globally, accounting for over $350 billion. Our ecosystem is remarkable, allowing us to engage with companies effectively. The positive outcomes from our collaborations with entities like ADNOC and Hertz highlight this. The second component is our advantage as a major capital market participant, which enables us to leverage capital market-driven flows, similar to the opportunities we've had with SoftBank. The third aspect relates to platforms. These are companies that are appealing investments in their own right, with a focus on credit origination, such as Wheels and Donlen. I believe we are still in the early stages of expanding our platform acquisition efforts. We have made great strides in areas like fleet finance, aircraft finance, senior secured middle-market finance, inventory, and franchise fees, among others. You can expect us to explore new areas, but importantly, we will also focus on scaling our existing platforms. Just as Donlen and Wheels merged, we plan to enhance our scale this year. Our commitment of resources in our internal FIG group is significant, and I expect that our FIG and Strategy Group will eventually match the size of our Private Equity group. This is a concentrated effort, as origination and ongoing origination are some of the most valuable activities we engage in. One final note: when we invest in an origination platform, it typically involves Athene, Thora, and our institutional limited-partner clients. They are attracted to origination because it serves as a consistent generator of relatively safe, low-teens returns. This investment is particularly appealing to large sovereign funds and extensive retirement services balance sheets. Our strategy not only provides a valuable alternative equity investment, usually sourced from the Retirement Services balance sheet and limited partner capital but also enhances our origination capabilities. Some of the origination is utilized within Retirement Services' balance sheets and credit funds, while a portion goes through our capital markets and syndication business, significantly enriching our ecosystem. Each day, the strength of our ecosystem improves through these platforms.
Finian O'Shea, Analyst
Thank you. That's very helpful. And just a follow-up, if I may. I'm sorry if I missed this. Can you talk about the trade-off on the Athene fixed income mark-to-market fee arrangements? Did you have to take a concession on the fee for that exchange?
Jim Zelter, Co-President
No. No. We've fixed it going through the close of the year. There's no impact.
Operator, Operator
Thank you. Our next question comes from the line of Robert A. Lee from Keefe, Bruyette & Woods. Your line is open.
Robert A. Lee, Analyst
Great. Thanks for taking my questions this morning. Just wanted to maybe ask on Athora a bit, I mean, I know you feel very good about the long-term opportunity there, but it feels like it's been pretty quiet since last year or so. I know that you wanted to kind of put that platform in the order once you acquire that big block of business. But what are your thoughts heading into 2022? Should we be thinking that, that business there's increased potential for more transactions coming out of Europe on that platform, now that you've you spent this past year maybe investing in it? So, just wanted to get some update there.
Marc Rowan, CEO
Marc here. I appreciate your view on quiet. The team managing Athora wants to grasp what busy looks like. Reflecting on Athora's recent developments, we completed a significant transaction in the Netherlands with VIVAT, which added approximately €40 billion to our balance sheet. Additionally, we made extensions in Belgium and initiated options in Italy this year, contributing another €8 million to €10 billion. That felt like a substantial amount for the year. As you mentioned, we are in a phase of assimilation. 2021 was all about absorbing these changes. Expect a significant capital raise at Athora sometime this year, initiated by Apollo with an increase of €250 million in a safe ahead of the future raise. We're also observing a shift towards new business opportunities. It often takes time to fully appreciate the ongoing prospects in markets like the Netherlands. We are beginning to see a pension risk transfer market emerge in Europe. Looking ahead, I anticipate an exceptionally active year in Europe. All signs indicate that there will be considerable business transactions. The increase in rates is beneficial in mitigating the embedded losses found in many legacy companies’ historic books. In summary, while 2021 was quite active, I foresee even more activity in 2022. Furthermore, the complexities faced in the U.S. over the past decade, particularly regarding Solvency II, mean that proficiency in both RBC and Solvency II offers a significant competitive edge. This is evident as Japan and other Asian markets transition towards Solvency II. Our teams, not just in Athora but also in Athene, have successfully utilized our expertise to execute initial reinsurance dealings in Japan for Athene. I expect this trend of increased activity to persist. To elaborate, the commoditization of publicly traded fixed income and traditional market players' challenges in generating excess returns are driving the sell-off of these business blocks, a trend likely to continue.
Operator, Operator
Thank you. Our next question comes from the line of Alexander Blostein from Goldman Sachs. Your line is now open.
Alexander Blostein, Analyst
Thanks. Good morning. Thanks for taking the question. So first, Marc, maybe just a clarification on the change in management fee concession with Athene is going from market value to book value; what's the impact relative to the Q4 level? So maybe just kind of help us level-set what the Athene management fee to Apollo was in the fourth quarter under kind of the new methodology and the old methodology. And then when it comes to macro moves broadly, kind of heard your comments obviously around rising interest rates on SRE, but how should we think about sensitivity to wide-grade spreads within SRE as well?
Marc Rowan, CEO
So Alex, there is no impact. There’s no immediate impact from the change in the fee structure. As we process purchase accounting and the PCAOB requirements, book value aligns with market value on day one. Therefore, book value effectively transitions to market value and establishes a new basis moving forward. The asset value you are referencing for the fee rate remains the same, with no additional adjustments to the contract. It’s quite straightforward. Regarding spread duration and spread risk, I would consider that to have a similar profile to credit and rates. However, it obviously varies based on portfolio turnover, as rates reset monthly or quarterly. Spreads also adjust when securities are bought and sold, leading to a more extended impact on the pull-through.
Alexander Blostein, Analyst
Got it. All right. Thanks for clarification. Bigger-picture question on fundraising. You guys sound pretty excited about 2022, $80 billion plus. Can you help break down what the latest assumptions are for maybe Fund X? And then, Jim, to your point around potential upside to that $80 billion number, where do you guys see the areas of potential upside?
Jim Zelter, Co-President
Well, I mean, I think we've been pretty clear over the last several months that we've been out in front with Fund X flagship, $25 billion. And Scott and the team are focused on that as the number one priority, but we have a variety of other institutional products between yield. And hybrid EPF is out there right now. We're excited by the breadth of that. Certainly, when we think about what global wealth can do this year, we look at that contributing. In the past, it was sub-5% to 10%. And I think you're going to see in a number north of $5 billion or $6 billion on the global wealth part in addition. So we've got a lot of cylinders humming in the fundraising. And as we said, a $23 billion in 2021, ex the flagship, that's what gives us great comfort and confidence. What's really going on here for us, I know there's a tremendous amount of questions about rates in the curve, which are all critical to us. But what it really means for us it's the repricing of equity risk premium. And as Marc talked about, we've been in a decade where price didn't matter. For us, as our strategy, all of this volatility in repricing risk premium, this is front and center of benefit of how we run our PE business. We're the classic leader in that global business in that field when there's market dispersion, hybrid value, tremendous product in that area as well. So, we feel very, very comfortable with it. If the macro moves, like we believe there will be more stock dispersion and what you've seen happen in certain growth areas, we just feel like that really plays right into our strategy.
Operator, Operator
Thank you. Our next question comes from the line of Rufus Hone from Bank of Montreal. Your line is now open.
Rufus Hone, Analyst
Great. Thanks for taking my question. I wanted to ask about retirement services. And I was hoping you could discuss your thoughts around where you think the ROE of Athene can get to over time, particularly as you bring on more third party capital and as you get the tailwind of higher interest rates feeding through to higher on the margin spreads. Thank you.
Marc Rowan, CEO
I'll give it a try. It's Marc. Since inception, Athene has generated approximately a 17.7% return on book value. We continue to underwrite business, having done so in 2021 at over 15% cash-on-cash. Our goal in retirement services is to achieve a mid-teens rate of return on a sustainable basis. The rates themselves aren't a major concern, and I'm not entirely convinced that spreads are significant either, as the market adapts to the pricing of new liabilities in a competitive environment. The main factor driving the growth and profitability of Retirement Services is our ability to source assets. We've made a significant investment over the years in origination, which is now paying off and positively impacting the balance sheets of our retirement services. By partnering with third parties, we create mutual benefits. We maintain a carefully diversified portfolio and easily syndicate to other insurers, money managers, and clients. This allows us to increase our flow, enhance diversification, build our ecosystem, and have ample products to meet the internal demands of Athene, Athora, and various credit funds. For clients, this means they can invest alongside us in a unified manner, as we are more than just brokers or asset managers; we're principals. This alignment is an incredibly valuable asset in this sector, and we are witnessing its advantages.
Operator, Operator
Thank you. We have reached our allotted time for questions. I will now turn the floor to Noah Gunn for any additional or closing remarks.
Noah Gunn, Global Head of Investor Relations
Great. Thank you. Really appreciate everyone's interest in Apollo this morning and participating in our call. If you have any questions on anything we discuss on the call, please feel free to reach out to us. And we look forward to speaking with you again next quarter.
Operator, Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.