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Apollo Global Management, LLC (NYSE:APO)
Q3 2018 Earnings Conference Call
Oct 31, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Apollo Global Management's Third Quarter 2018 Earnings Conference Call. During today's presentation all callers will be placed in listen-only mode, and following management's prepared remarks the conference call will be open 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 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 in any Apollo fund.

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

Gary Stein -- Head of Corporate Communications

Great. Thanks, operator. Good morning everyone. Welcome to our third quarter earnings call. Joining me this morning are Josh Harris, Co-Founder and Senior Managing Director, and Martin Kelly, our Chief Financial Officer. We are also joined by Jim Zelter and Scott Kleinman, our Co-Presidents, and Gary Parr, Senior Managing Director. Jim, Scott, and Gary will be available for the Q&A portion of the call.

Earlier this morning, we reported distributable earnings of $0.55 per share, which led to a cash distribution of $0.46 per share for the third quarter. The quarter's distributable earnings were primarily driven by fee-related earnings, or FRE, of $0.48 per share. Lastly, we reported an economic net income of $0.83 per share for the third quarter of 2018.

With that, I'll turn the call over to Josh Harris.

Joshua Harris -- Co-Founder and Director

Thanks, Gary. And thanks, everyone, for joining us. During my prepared remarks this morning I'd like to share my thoughts on a few key drivers that continue to propel Apollo's business forward, including the ongoing growth of our fee-related earnings. The pace of our managed funds capital deployment, and the solid pipeline for continued asset growth. I'll then turn the call over to Martin so he can provide you with some comments regarding our third quarter investment performance and financial results before we take your questions.

I'd like to begin my remarks by touching on Apollo's growing earnings power, particularly as it relates to our fee-related earnings or FRE. As we've said before, we believe FRE is a critical financial metric since it is a foundational component of our quarterly and annual cash distributions and is largely based on recurring management fees. I'm pleased to note that our fee-related earnings are continuing to increase, reaching $0.48 per share this quarter, which is up 20% versus the year-ago quarter. It's important to recognize that our company's FRE is extremely stable and predictable since it is primarily generated by the long-dated fund and current capital vehicles which we manage.

In addition, we expect that our FRE will continue to trend higher over time as we grow the fee-generating assets under management across the Apollo platform. Revenues from management fees have comprised approximately 90% of our total fee revenues historically and have been growing at a compound annual rate of approximately 13% during the past 5 years. This growth in management fees has been augmented by the ongoing focus on efficiency, cost discipline and operating leverage, which has driven margin expansion that led to a 19% compound annual growth in core fee-related earnings over the same time frame. Going forward, we will continue to focus on driving our FRE higher since it is a reliable source of cash quarter-in and quarter-out regardless of whether we have any significant realization from funds we manage.

Moving on to capital employment, I'd like to focus my comments on our private equity business. As you may have noticed in our earnings presentation, deployment of private equity capital was somewhat light in the third quarter. However, as we've noted in the past, deployment does not occur at a steady pace. It can be lumpy from quarter to quarter. Based on outstanding commitments from pending transactions which included $4.3 billion new commitments in the third quarter. We remain confident that we will maintain our average annual deployment paid of $4 billion to $5 billion of private equity capital.

The two largest pending private equity deals are the paid private transaction of LifePoint Health, which is being acquired a funding portfolio company and is expected to benefit from meaningful synergies and is to take private of Aspen Insurance, which leverages our deep expertise in financial services and insurance. Both of these deals require sizable equity commitments, so we expect to raise equity co-investments for these transactions.

We are often asked how we are able to identify attractive investment opportunities in a private equity market where valuations are elevated. A significant amount of (inaudible) is available across the industry and relatively cheap financing is readily accessible. While we continue to evaluate traditional buyouts and corporate carve-outs, it's interesting to note that, in addition to the pending LifePoint and Aspen deals, funds managed by Apollo already completed 8 take-private transactions in the U.S. over the last 3 years in a range of industries where we have deep expertise.

In aggregate, private equity funds we manage have invested more than $10 billion of equity capital and funding take-private deals at what we believe were attractive prices. We continue to work through an active pipeline of potential investment opportunities that meet our value-oriented criteria, and our pipeline includes a number of other take-private deals. Although there's a general perception that public market valuations are relatively full, we see a bifurcation among publicly traded stocks with growth-oriented industry leaders on one hand, and companies that have fallen out of favor on the other hand. To this point, one statistic we like to highlight is the average p-multiple for S&P 500 is 16.4 times its earnings. But if you simply back out the bank stock, the multiple actually drops nearly 2 multiple points to 14.5. There are thousands of publicly traded companies in the U.S. and Europe, and by concentrating on industries we know well we believe we are able to identify fundamentally good companies trading at attractive prices which can provide opportunities to create value over time.

Turning now to asset growth, at the end of the third growth we had total assets under management of $270 billion, which is an increase of 12% or $29 billion over the last year. Over the last 12 months, we have generated inflows of $46 billion and we have a robust pipeline of fundraising activity that is taking place through our traditional fundraising efforts as well as our strategic capital initiatives. Starting with our traditional fundraising activities, we have several important initiatives in the market today that I'd like to highlight. In private equity, following a $2.2 billion first close of our Hybrid Value strategy, during the second quarter we continued to benefit from strong investor receptivity to this new product offering and we are targeting $3 billion in total commitments by sometime around year end.

As a reminder, Hybrid Values more formally integrate the expertise of our private equity and illiquid credit investment teams by focusing on capital solutions, structured equity, and noncontrolled stressed and distressed investments. This strategy seeks net returns in the low to mid-teens with downside protection which we believe provides a highly differentiated solution to our investors' portfolios. Starting the third quarter Hybrid Value completed its first two deals and continues to work through a strong pipeline of investment opportunities.

Next, our current flagship natural resources fund, ANRP II, has been creating significant value for investors, with growth and net returns since inception of 37% and 21%, respectively. This $3.5 billion fund is not more than 80% committed or invested, so we are actively fundraising for a successor fund and anticipate a first close to occur around year end.

In credit, our financial credit investments, or FCI fund franchise, is continuing to perform well and we recently began fundraising for our fourth vintage of this differentiated insurance strategy. We expect a first close for FCI for some time around year end. We've also had a very positive reception for the fourth fund in our structured credit recovery strategy, which we refer to as FCRF IV. To date, we have closed on $2.2 billion and we expect to have a final closing with a target of $2.5 billion during the fourth quarter. In total, we expect that FCRF IV will be twice as large as its predecessor fund.

Turning to our real assets business, a few weeks ago we announced that funds managed by Apollo entered into a transaction to acquire an approximately $1 billion portfolio of equity investments in energy assets from GE Capital's energy and financial services unit. The equity portfolio comprises approximately 20 investments in renewable energy, contracted natural gas, fire generation, and midstream energy infrastructure assets. In connection with this transaction, we will also look to form an ongoing relationship with GE Capital with respect to new energy infrastructure investments. We are excited by this unique opportunity to extend our existing infrastructure capabilities and launch a new equity investment platform.

The foundation of this platform will have what we believe is an attractive portfolio of cash-generating assets from its inception, and we believe this strategy enables us to leverage our deep expertise in energy and infrastructure in a differentiated manner. This platform is also highly complementary to our existing infrastructure credit strategy where we currently manage a portfolio of debt investments totally $1.5 billion.

Lastly, we continue to see heightened interest for bespoke long-dated managed accounts across our credit business as well as the broader Apollo platform. These dialogues with some of the world's largest institutional investors are occurring with a mix of new clients as well as with current investors that are seeking to expand their existing managed accounts. We are now managing a total of approximately $23 billion across these strategic accounts.

Earlier this month, we established a significant new strategic managed account focusing on performing credit, which is expected to launch in the fourth quarter and then continue to ramp up throughout 2019, ultimately reaching several billion dollars in aggregate.

I would now like to spend a few minutes discussing the growth opportunities across our insurance platform. Our spectrum of insurance capabilities continue to expand and complement our existing US and European spread businesses with further capabilities such as Venerable, which is focused on variable annuities, FCI, which is focused on the longevity space, and Catalina, which is focused on the non-life-insurance runoff space. Athene, which is the largest permanent capital vehicle we provide investment management services to, now has approximately $100 billion of assets and they continue to grow through a variety of well-established organic channels. In addition, during their first Investor Day, which they listed last month, Athene outlined a path to significantly (inaudible) over time through a combination of organic and strategic pathways. Through the strength of our strategic relationship with Athene, where we serve as the manager for their assets, we've helped them to deliver consistent investment outperformance within the life insurance industry.

We are also pleased that in connection with Athene's Investor Day, we jointly announce several key revisions to our investment management agreements with Athene. These revised arrangements, which remain subject to approval by Athene's shareholders, provide for an extended contract term of 4 years with automatic renewals for each sets of 2-year period thereafter and also provide for certain amendments to reflect Athene's current scale and proposed growth to maintain a strong alignment of interests.

Turning to Europe, as we have discussed previously, we're assisting Athene in replicating its success by establishing Athora as a capital solutions provider for the European life insurance market. Athora is pursuing accretive acquisitions to grow their business which, similar to Athene, has the added benefit of Apollo's business since we are their strategic asset management partner. Athora's balance sheet will be approximately $15 billion following the pending Generali Belgium transaction, which will expand their European footprint. Both of those transactions are expected to close around year-end, subject to regulatory approvals.

Another platform I'd like to touch on is Catalina, which is a leader in the consolidation of the non-life-insurance runoff industry. Apollo and funds we manage have been working with Catalina since 2013, and during that time the company's completed 16 acquisitions and grown to $4 billion of assets. I'm pleased to note that just a few weeks ago we completed a transaction in which funds managed by Apollo acquired a majority stake in the company and also committed $700 million of dry powder to fund growth to renew acquisitions. We look forward to building upon our strong relationship with Catalina and leveraging Apollo's deep insurance expertise and continue to help the company drive its significant anticipated growth. It is also important to note that this strategic relationship with Apollo adds another key component to our broad suite of insurance capabilities.

In addition to the existing platforms I just discussed, we continue to evaluate a number of interesting opportunities across the insurance industry. While it is impossible to predict whether any of these opportunities will materialize into an actual transaction, they each represent significant potential growth areas to the Apollo platform. Moreover, with more than 150 professionals across Apollo focused on the insurance and broader financial services landscape, we believe that we have unique capability to originate, evaluate, and complete highly complex insurance-related transactions.

And now I'd like to turn the call over to Martin. Thank you.

Martin Bernard Kelly -- Chief Financial Officer

Thanks, Josh, and good morning, again, everyone. Starting with distributable earnings, the $226 million or $0.55 per share we generated during the third quarter was driven by strong growth and stability of our fee-related earnings, as Josh highlighted. Fee-related earnings of $197 million or $0.48 per share were complemented by realized performance fees and realized investment income, principally generated by monetization activity in Fund VIII.

In addition to our strong and growing FRE, our economic net income for the third quarter was bolstered by appreciation of Athene's stock price as well as positive net performance fees, which was partially offset by elevated profit share expense. The net result of these items drove economic net income of $334 million or $0.83 per share post-tax.

As it relates to the quarterly mark on Athene, the fair value increased by 18% quarter-over-quarter due to the highest trading levels of its stock, and by a modest reduction in the liquidity discount on the shares held on our balance sheet. The net impact of the increase in value on our economic earnings was an unrealized gain of $0.39 per share for the quarter, which flowed through both credit and private equity, given the nature of how we acquired the shares we hold. Although the market-to-market value can fluctuate (inaudible) from one quarter to the next, we believe strategic investments like our 10% economic stake in Athene serves to strengthen our balance sheet and further align ourselves with a key strategic partner. I also wanted to note that while there have been some negative press reports regarding Athene and Apollo, we believe those reports are inaccurate and misleading.

Next, I'd like to provide some context behind the quarter's net performance fee generation. Total performance fees for the quarter were $127 million or $49 million net of profit share. Notably, each of our business segments delivered positive returns in the third quarter. In credit, on an aggregate basis, the funds we manage generated a blended gross return of 1.7% during the quarter and approximately 6.6% over 12 months ending September 30. As a reminder, the credit performance statistics we provide are gross returns that aggravate the performance of all the credit funds we manage across a range of risk-return profiles, excluding Athene's non-supervised assets. We have placed a not that, as of the end of September, this is the 11th consecutive quarter and 31st consecutive month that our credit business has delivered a positive blended gross return.

In an environment where low interest rates and negative nominal rates continue to persist around the world, we believe Apollo's credit platform is delivering a compelling and differentiated value proposition to its clients through a diverse product set that spans the risk-and-return spectrum.

In private equity, the portfolio appreciated by 2.3% in the quarter and 10% over the 12 months ended September 30. The third quarter mark was driven by 8.5% appreciation in publicly traded holdings and essentially flat performance in private holdings. Fund VIII, which currently represents approximately 75% of the remaining fair value of all the traditional fee funds we manage, appreciated by 3% in the third quarter and 13% over the last 12 months.

As of 9:30, Monday had a gross and net IRR of 23% and 16%, respectively. As we sell off the remaining legacy holdings in the older PE funds we manage, Fund VIII will represent an increasingly larger proportion of the total value in our private equity business. Overall, the portfolio, which continues to season, is performing well and it seems optimistic about its long-term value proposition.

In real assets, our investment performance, as measured by the U.S. real estate equity business, was up 4.6% during the quarter, and this segment continues to perform well.

Next, as it relates to the elevated profit share expense, the above-average ratio of nearly 69% during the quarter was principally due to 2 factors: first, higher equity for its profit share, arising from certain performance-based grants which will continue to amortize at seminal levels for the remainder of the year before stepping down in 2019 and again, in 2020; and second, a higher incentive (inaudible) which can vary quarter-to-quarter as we progress through a calendar year.

I'd also like to note that we currently expect to generate an elevated level of transaction fees in the fourth quarter if the GE Capital and LifePoint transactions that Josh described earlier are completed before year-end, combined with the recently completed Catalina deal.

Turning briefly to asset flows, during the quarter we had total inflows of nearly $6 billion, which were partially offset by outflows following the sale of a portfolio company in our European (inaudible) platform, and the redemption of a credit-managed account by a client who managed a strategic decision to manage the portfolio in-house.

Lastly, as a testament to the growing financial strength of the Apollo platform, we're proud to note that just last week Fitch upgraded our credit rating to an A. So, now we have an A rating from both Fitch and S&P. Fitch cited several reasons for the upgrade, including the scalability of our platform, the significant and growing amount of permanent capital we have on the management, and our strong competitive position.

With that, we'll turn the call back to the operator and open the line for any of your questions.

Questions and Answers:

Operator

Thank you. The floor is now open for questions. If you wish to ask a question at this time, please press star then the number 1 on your telephone keypad. If a question has been answered you may remove yourself from the queue by pressing the pound key.

For today's call, we will be taking only one question per person initially, and to the extent that there are follow-up questions we ask that you please reenter the queue by again pressing star, then the number 1 on your keypad.

Our first question comes from the line of Alex Blostein of Goldman Sachs.

Alexander Blostein -- Goldman Sachs -- Analyst

Thanks, guys. Good morning everybody. So, maybe to start with just the outlook on fee-related earnings, you know, you guys continue to highlight that as obviously a very important measure. A couple things I was hoping to hit on. A) can you talk a little bit about the new infrastructure business and kind of the opportunity that you see for that business to evolve with the GE acquisition? And 2) now that we've seen a big step up in management fee from Fund IX, what sort of management to growth do you guys anticipate over the next several years as some of these new initiatives come into play?

Joshua Harris -- Co-Founder and Director

Yeah, I mean, we've obviously been growing management fees as low double-digit, and then, you know, we have significant operating leverage in the platform so that our earnings grow at mid- high-teens. Certainly, you know, we've added a lot of things to our management fee in the last year which are going to annualize next year -- certainly not all. Fund IX will annualize next year. The Voya transaction will annualize next year. And then there's a series of other things that are coming. And so, we expect to be able to continue plus or minus on that trajectory.

In terms of the GE acquisition, I'll let Scott Kleinman comment on that because he led it.

Scott Kleinman -- Co-President & Lead Partner of Private Equity

Sure. So, as Josh mentioned in his comments, we did make our acquisition of about a billion-dollar pool of assets in the infra equity business, which really complements a bunch of the energy and infra investments we were making in some related funds. So, to your question about where do we go from here, I think this creates a really attractive base when combined with the infra debt business we've been managing for a couple years now. And our goal would be to see this grow over the next few years, so this is an area we think there's a lot of opportunity. Apollo brings, I think, a very attractive skill set to that space so we're pretty excited about it.

Operator

Our next question comes from the line of Robert Lee of KBW.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Great. Thanks for taking my questions. I guess my first question would be, given your outlook for fundraising I guess is pretty positive. But we've seen, particularly in insurances, as you highlighted, but with so many, it feels like it's become the -- every hole your competitors seem to be entering the business or trying to get into it and obviously you have been doing it longer and are larger. But so, what is this doing -- what do you think it's doing -- to the opportunity set in some places? Whether with Athene and other annuity assets, I mean, how are you kind of tactically shifting to respond to growing competition? At least, what it seems like.

Gary Stein -- Head of Corporate Communications

So, this is Gary. I would make a few comments. First is, it's a very broad industry -- a very large industry. So, we talked about, for example, in Europe, there's roughly a $3 trillion opportunity of US (inaudible) similarly very large marketplace. Interestingly, the first thing we've done strategically positioning is that we, through our various affiliations, have more capability than anybody else, really. Having the fixed annuity spread capability of Athene, we have a capability in Europe. We have property cash runoff expertise and so, by having that, we try to approach ideas with companies to provide solutions. We like to find complex situations where we can help someone solve their problems, and we have an array of expertise. So that's our comparative advantage.

We could also actually look at transactions that are larger than what most can look at. Of course, we have the various markets of capital. As to the field of opportunities on the marketplace, there aren't a lot of strategic buyers, and so that actually creates opportunity for us, as well. So, it's not just whenever we're looking at the insurance industry, it's not limited just to financial sponsors or alternative asset managers and what they might do. One has to look at strategics, and there are a limited number of strategics that are active. Indeed, many of the strategic companies are repositioning and selling businesses. So, that's what's creating the opportunities for us.

Joshua Harris -- Co-Founder and Director

My only (inaudible) is, you have to contain it in a way. We have 150 people focused on insurance and financial services and certainly, people have seen the successes of (inaudible) and the like. When we look across the spectrum of what we can do it's much broader, and we're looking at new areas all the time. To add and augment and other (inaudible) can't follow. So, I think we're going to stay ahead of the pack here based on the growing expertise we have. But certainly, you can't stand still.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Thank you.

Operator

Our next question comes from the line of Michael Carrier of Bank of America Merrill Lynch

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Hi. Thanks. Just a question for Josh. Some of the underperformance, you guys gave some color on and the P portfolio, you know, with the privates, you know, flattish. Just wanted to get your take on how you're seeing the portfolio, and probably more importantly, just when we think about going forward, how that should dull to net a crude, given the realizations over time. I understand last year was a great year for the portfolio, but just wanted to get some sense on the outlook in terms of what you're seeing.

Joshua Harris -- Co-Founder and Director

Yeah. Look, I mean I'd say that the portfolio is heading in a very positive direction. Certainly, as I mentioned in remarks, 75% of the overall private equity portfolio is Fund VIII, right? And the balance is stuff that we're, so remaining portfolio investments that we're liquidating from everything. Fund IX obviously has one investment -- one committed investment in it. So, I would say that Fund VIII's returns are about 23% gross, and I think that speaks to this. So, you will see some quarterly volatility on marks, but bottom line is setting a very positive direction. (Inaudible) for the portfolio in revenues for the portfolio, we're up around 5% each. And so, the portfolio is maturing very, very nicely and we would expect it to continue to head in a positive direction and be consistent with our past performance, which is top of the industry, clearly.

Relative to realizations, it's hard to imagine this -- this is a very low year for us and we're in the life cycle where Fund VIII is literally a -- the average investment in Fund VIII is about just a little over 2 years. And so, we would expect that fund to mature and we would expect our realizations to go up significantly over the next few years. Having said that, obviously, it's market-dependent. And when you see volatility -- we've been expecting some volatility. We're certainly seeing a little bit of that now, and if the environment isn't conducive to realizations, then we'll be more buyers than sellers. And so, predicting on a quarterly basis is relatively complicated, but we still feel very, very positive about everything that's going on.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Okay. Thanks a lot.

Operator

Our next question comes from the line of Bill Katz of Citi.

William Katz -- Citi -- Analyst

Okay. Thanks very much. So, a little bit of a nested question -- you saw highlight the stability, invincibility of the FRE, the managed revenues underneath that, the permanent capital vehicles, and saw the nice growth that you so laid out, both FRE as well as new money coming in across a broadening global platform. So, looking at the relative spread of your stock price versus KKR or even areas that have sort of shifted to a C-Corp, what's your latest thinking on that at this point in time? And what are some of the milestones that you might be thinking about that would further reflect on your decision-making? Thank you.

Joshua Harris -- Co-Founder and Director

So, clearly, we're obviously incredibly focused on our stock price as the three of us own a huge amount of shares and the employees own a huge amount of shares. And we notice certainly, we do think there has been some positive uplift in the stock, certainly of KKR since it started talking about C-Corp. Having said that, we're looking very hard at it and very focused on it. There's no real milestone to really -- unfortunately, that sort of going to have to stand the test of time of it, because as we've said before, you're destroying cashflow permanently, right? Unless the tax laws change, you look at the current tax regime this is really beneficial to shareholders. And so, you want to be studied and thoughtful about it.

And so, we don't really have a milestone. By the way, the stock prices change daily. I mean, we were all sitting around yesterday and staring at KTR's performance since they converted, and it's not dissimilar to ours, but it depends on which time period you pick. And so, I don't think there's enough information yet in the marketplace. I think, certainly, as people season and as indexes come into play and all of the things that we're all focused on, we're going to see how all that goes and make a decision. If we think we can create value long run for shareholders we're going to do it. And so, that's really as much as I can say at this point.

William Katz -- Citi -- Analyst

Thank you.

Operator

Our next question comes from the line of Ken Worthington of JPMorgan.

Ken Worthington -- JPMorgan -- Analyst

Hi. Good morning. Just on real assets -- so, that business continues to show very good growth, albeit off a small base. I was hoping you could further flush out, maybe, the successes you're having there. I'm going to try to wrap this into this question, as well. I assume the future relationship with GE falls under real assets? If that's the case, can you explain again what you're doing with GE going forward because I didn't quite get how the go-forward relationship is going to work? Thanks.

Scott Kleinman -- Co-President & Lead Partner of Private Equity

Sure. So, our real assets platform consists of a variety of real estate, equity businesses, and real estate debt businesses really globally. You are correct, as we build out our new infrastructure platforms, that also will fall under that segment.

So, I think you're right. Those businesses have been performing quite well. In fact, we would expect some additional fundraising next year as a few of those businesses are coming to the end of their dry powder. So, activity has been pretty strong in those businesses, but as you pointed out, off a smaller base relative to our other businesses.

With respect to the ongoing relationship with GE, that will be a -- think of it as a sourcing and flow arrangement as GE continues -- the business originally arose from GE's power equipment sales business and many of their clients looking for a variety of funding arrangements. So, there will be an ongoing relationship. That won't be the only source of flow, obviously, from the business. That will be a strategic relationship that gives us a first look at many of those opportunities.

Ken Worthington -- JPMorgan -- Analyst

Okay, great. Thank you very much.

Operator

Our next question comes from the line of Michael Cyprys of Morgan Stanley.

Michael Cyprys -- Morgan Stanley -- Analyst

Morning. I just wanted to follow up a little bit on the infrastructure renewed (inaudible) portfolio from GE. If you could talk a little bit about the economics -- how the funds are going to be structured. What are you targeting in terms of returns, investment horizon? And how it differs from the existing ANRP funds and any additional headcount (inaudible) platform. Sorry, just a bit under the weather.

Scott Kleinman -- Co-President & Lead Partner of Private Equity

Sure, Michael. This is Scott again. The businesses that are in that portfolio and what would be the crux of the focus of the new fund would be more in the core-plus or value-added segment of the infrastructure space. So, think 10 to 13% type IRRs for those styles of investments. That differs from our existing natural resource fund, making energy investments but in the 20% plus rates of return. How we see our infra debt business would be in the 6 -- 10% type rates of return. So, hopefully, that sort of covers the spectrum. As you can see, this is a welcome addition to the middle portion of that returns spectrum that Apollo was looking to really build up and fill out its product offering profile.

Joshua Harris -- Co-Founder and Director

Most of what ANRP does is upstream and natural resource-based, and obviously, we hedge it, so if there's some amount (inaudible). As you move to infrastructure it's generally midstream or downstream, and so the price fluctuations and the volatility are much lower and therefore the returns are much more predictable. And they're almost different businesses.

Operator

Our next question comes from the line of Craig Siegenthaler of Credit Suisse.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks. Good morning, guys. Can you update us on your progress to form, and I think it's around 10 credit portfolio companies like midcap, like the GE business, and really the purpose of these 10 businesses to help fund your insurance operation?

James Zelter -- Co-President, Managing Partner

Sure. This is Jim. Certainly, that's as we've laid out in the past, that's currently our long-term goal is to have a variety of these origination platforms. Whether it's midcap, whether it's our aircraft, whether it's in other types of US mortgages, Amerihome. So, certainly, we are on the constant hunt to bring those teams in. We've made some nice progress in continuing to establish our existing platform this year. Certainly, when we first looked at the infrastructure opportunity we looked at it from a debt side. As Scott mentioned, we found the opportunity with GE on the infrastructure equity side. So, there's nothing new to report in terms of a new platform that we've seeded this year, but the consistent growth and experience that we've had in our other platforms is still a key attribute of our long-term objectives, and we're constantly on the hunt. But good steady progress from the vehicles and the platforms we have to date.

Joshua Harris -- Co-Founder and Director

One thing to just make sure there's no confusion on -- so, we've gone from 0 to $126 billion of this stuff over the last 8 or 9 years, and it's a growing part -- it will grow faster, we think, than the -- it will become an increasing percentage of our company. But I'm not sure what the 10 permanent capital vehicles came from. I think we're always looking for opportunities and, certainly, going to continue to do this. But the "10" thing I just wanted to clear up.

Operator

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

Devin Ryan -- JMP Securities -- Analyst

Great. Good morning, everyone. First question just for Josh, and following up on your comments on the public market valuation, which was interesting. It sounds like you're seeing some attractive opportunities, which is -- I'm assuming why it was highlighted and obviously recently entered one name. So, I guess, first, does that tell us anything about the competitive dynamics in the private markets on a relative basis? And then in the public markets what characteristics are you looking for? How does that differ in higher evaluating in private investments? I'm sure there are some additional considerations. And then, are there any sectors that really stand out today as being dislocated?

Joshua Harris -- Co-Founder and Director

Yeah, so I think -- first, though, to take -- a lot of questions there, but I'd say the fundamentals we're looking for are similar. We want to buy good companies at low prices. Good franchises that have a reason to exist, that have a reason to flourish. And so, what we do is we literally just look for the best possible pathway to be able to do that, and in certain cases, it's the distress for control market. Like, that had to really have been a great market. And certainly, in many cases, it is the private market. To add on to what you said, yes, we are seeing the private markets are generally driven by the availability of leveraged finance, of bank and high-yield capital, and the dry powder. And we're seeing those markets a bit more competitive.

Public markets generally are driven by a lot of other factors. Certainly, there are the haves and the have-nots in the public markets today. If you're categoric and industry leader and you're in a favored industry -- particularly growth or technology industry -- you trade at a very high multiple and there's a lot of companies that have been left behind. And a lot of industries that have been left behind. I would argue that the alternatives have been unfairly left behind to give us a gratuitous but, I think, authentic plug as to our particular industry and our company. But there's lots of examples of it and if you have a complicated story you're not really welcome so much in the public market. So, that is creating a very fertile hunting ground for private equity and we do see more opportunities there. And certainly, the $10 billion-plus of capital we put out recently into the public markets will continue to grow.

Operator

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

Glenn Schorr -- Evercore ISI -- Analyst

Hi. Thanks very much. I'm curious, the Asian markets have come in a lot more than, say, the US. I'm curious if it either accelerates your enthusiasm as individual investments or for maybe taking Apollo there in a more significant way.

James Zelter -- Co-President, Managing Partner

This is Jim. You know, I would say that we've obviously been watching some of the volatility that's gone on in some of the Asian markets, mostly in the equity market, which, as you know, we really -- unless it's private equity -- don't really play day-to-day in the equity market. Certainly, I think we have long-term objectives in Asia, which we've talked about in the past. Whether it's taking advantage of our skill set in value private equity, which Scott can talk about, but I think overall, we're noticing what's going on in recent volatility in the equity markets, but our long-term plan and our long-term investment discipline is really not going to change in terms of the value player. And Scott can talk a little bit about our expansion and our thoughts about the Asian pursuit, as well.

Scott Kleinman -- Co-President & Lead Partner of Private Equity

Yeah, look, we've talked about on these calls before, but we are pretty rifle-shy when it comes to entering new markets and so we've been in India, for example, for some time. And the volatility there is interesting. It's creating perhaps even an acceleration of opportunities, and we continue to invest both in companies and in the team on the ground in India. We've also made comments about our desire to start to plant a flag and grow in Japan, and so you'll be seeing some of that. Again, cautiously and nothing heroic in the beginning. You know, those are really where we're spending time now from a private equity standpoint. Everything else is -- we're just cautiously watching.

Glenn Schorr -- Evercore ISI -- Analyst

I appreciate that. Just one quick follow-up on the private equity performance. I hear you loud and clear on Fund VIII -- where it's tracking and its biggest piece of what's left. How are we supposed to look at that, the trailing 12 performance at 10% weigh? Like half of what we're used to for the last 30 years for Apollo. Is that just episodic in that it's a stub so it means less?

Scott Kleinman -- Co-President & Lead Partner of Private Equity

Yeah. I think that's right. After a pretty big couple of years -- the years prior. Remember, the portfolio is made up of 40 to 50 individual investments and, as you see, some move faster, some move a little slower. I think that's really all you can read from it. To sort of echo Josh's comments from earlier, we still feel really good about this portfolio and its ability to deliver returns consistent with our historic averages.

Glenn Schorr -- Evercore ISI -- Analyst

Okay, thanks. Appreciate it.

Operator

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

Patrick Davitt -- Autonomous Research -- Analyst

Hi. Good morning. How do you reconcile the flat private PE mark with your comment that (inaudible) out-grossed us in the 5% range and markets were up 5 to 7% in 3Q? And similarly, why did the credit performance feature appear to diverge so significantly from your mark? You both suggest some idiosyncratic markdowns or is there something else going on there?

Martin Bernard Kelly -- Chief Financial Officer

Yeah, so in PE we look at the comps. And so, for the comps that we've looked at, based on the companies that we own, in the quarter there were some headwinds on multiple pressures. So, that sort of was an underlying improvement in performance. And then, in credit, our year-to-date carrying credit is pretty much the same as it was last year. Nine months on nine months? And so, in this quarter we had two positions in Europe that we took some losses on. So, they're idiosyncratic. I wouldn't, they don't read across for the rest of the book, but that created the blinded 1% uptick in the drawdown funds that you can see in the tables. And that's less than what you need to sort of keep up with the press. And so, when you blend it all together, was the reason for the lighter credit carry in Q3 relative to where it was.

Operator

Our next question comes from the line of Chris Harris of Wells Fargo.

Christopher Harris -- Wells Fargo -- Analyst

Thanks, guys. If the equity market stabilized from here and the environment for exits is good, do you guys think you could simultaneously be a net seller while growing FRE by the double-digit percent you referenced?

Joshua Harris -- Co-Founder and Director

Yeah, we do. All of these are idiosyncratic and at the end of the day, your job as an investor in private equity is to buy well, create value, and then sell. None of this stuff, it's all meant to be a 5 to 7-year underwritten deal, and so there's clearly going to be lots of situations where we don't think the particular market backdrop is fantastic, but we've created a lot of value in a company. We've achieved our objectives and we sell it. And at the same time, the 14.5 multiple that we talked about relative to the S&P excluding the tech stocks, that's going to create a buying opportunity across the public markets. And so, they're not linked. On a broad basis certainly -- obviously if there's a better seller's market we'll sell maybe a little bit more. But by and large, we have a job to do over 5 years, 7 years, 3 years, and not only that, each industry is very unique. We've got a bunch of industries that might be trading well and some others that aren't, and so we invest across many, many industries. And so, you can't really generalize. So, yes, I do think that you can have both of those things occurring.

Operator

Our next question comes from the line of Brent Dilts of UBS.

Brent Dilts -- UBS -- Analyst

 

Hi, good morning. My question is on the revised fee structure with Athene. So, as you look at organic and inorganic growth of Athene over the next few years, how are you thinking about allocation across the different sub-allocation fee buckets? And what that might mean for the overall fees you get paid? And then, within those higher fee asset classes, is there any fallback arrangement tied to the fees?

James Zelter -- Co-President, Managing Partner

So, as Athene has said in their investor day, and pretty clearly in their disclosure when we restructured and amended the construct we really did it in a manner which align our objectives and their objectives of net investment returns in the portfolio. So, as you know, the base fee got adjusted down and the ability for us to create and source and analyze successfully the higher-yielding assets across the portfolio -- still many investment grade, but higher yielding commercial mortgages and the like -- we get a higher return and we get a higher fee base. The more that we're able to produce those assets and contrast that to investment-grade corporates, it's a lower fee. So, we're exactly aligned with the same long-term objectives. Certainly, there is a comprehensive proposal and the structure has the ability for us to generate higher returns. There is a once-a-year lookback, but the basic construct of our fee to the benefit of Apollo is very similar, but it creates the right objectives and long-term alignment.

Joshua Harris -- Co-Founder and Director

Yeah, to be clear, the fee arrangement day one is net neutral to both companies, as we have stated. But over time, they're looking for us to provide excess return, and if we do that we'll get paid more over time. If we don't do it, we'll get paid less. And we're confident of our ability to do it. So, that's the alignment Jim's talking about.

Operator

Our final question is a follow-up from the line of Robert Lee of KBW.

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Thanks. Thanks for taking my follow-up. I just wanted a quick question on Catalina. I guess I just want to better understand the recent fundraising and transaction. Is that something that Apollo participated in directly? And should we be thinking of that as another permanent capital vehicle, even though you don't list it in that fashion?

Gary Stein -- Head of Corporate Communications

Between Martin and I, we'll address that. We do not see it as a permanent capital vehicle, so for example, we don't manage the assets of Catalina currently. We will provide some services over time to them, so that will increase. But as it is structured it's somewhat different. But we do see it as a core part of our strategic ability. We are in active dialogue with Catalina. We actually have already been working on one transaction in conjunction with Catalina where we bundled it with other companies that are in the Apollo field, others that we work with. So, that part, it is a tool and part of us delivering solutions.

Martin Bernard Kelly -- Chief Financial Officer

Yeah, we didn't directly participate in funding it. We did drive a transactional fee, which we mentioned. And then it's sort of, as Gary said, it's sort of part of the broader insurance platform where we mainly paid management fees for business related to it, but not directly related to assets in Catalina.

Joshua Harris -- Co-Founder and Director

But just to be clear, I believe this is in our AUM in the sense that we did what we've done with all of these platforms, which is we went out and arranged investor capital and put up a GT commitment. So, I think we're maybe -- I just want to make sure we're clear -- this is just like Athene, just like Athora. We've raised this vehicle. We do not manage the assets. But it is, as Gary said, part of... it gives us another capability that others don't have that allows us to holistically approach insurance companies with solutions. So, I think, depending on how you define permanent capital -- strategic capital -- maybe either it is or it isn't. I think broadly it is. But the distinction as to this versus Athene, which is the active management, is to lay it out.

Operator

And thank you. That concludes the Q&A portion of today's call. I will now return the floor back over to Gary Stein for any additional or closing remarks.

Gary Stein -- Head of Corporate Communications

Great. Thanks, operator. Thanks again, everyone, for joining us this morning. We look forward to speaking with you again next quarter.

Operator

Thank you, ladies and gentlemen. This does conclude Apollo's third quarter 2018 Earnings Conference Call. You may now disconnect and have a wonderful day.

Duration: 56 minutes

Call participants:

Gary Stein -- Head of Corporate Communications

Joshua Harris -- Co-Founder and Director

Martin Bernard Kelly -- Chief Financial Officer

Alexander Blostein -- Goldman Sachs -- Analyst

Scott Kleinman -- Co-President & Lead Partner of Private Equity

Robert Lee -- Keefe, Bruyette & Woods -- Analyst

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

William Katz -- Citi -- Analyst

Ken Worthington -- JPMorgan -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

Craig Siegenthaler -- Credit Suisse -- Analyst

James Zelter -- Co-President, Managing Partner

Devin Ryan -- JMP Securities -- Analyst

Glenn Schorr -- Evercore ISI -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

Christopher Harris -- Wells Fargo -- Analyst

Brent Dilts -- UBS -- Analyst

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