Apollo hits record $414bn AuM thanks to insurance deals & ACRA

We often discuss the investing fire-power that insurance and reinsurance deals bring to major players, such as Warren Buffett’s Berkshire Hathaway. But, perhaps the real lead example of insurance related investment float accumulation is Apollo Global Management, Inc.

Apollo has hit a new high of $414 billion of assets under its management in the last quarter, with a huge $330 billion classed as fee generating, while almost $125 billion of it is performance fee generating.

A significant $246 billion of this lies in so-called permanent capital vehicles, chiefly Apollo’s life and retirement reinsurance focused Athene Holding Ltd., as well as its Europe-focused specialised insurance and reinsurance group Athora.

These two insurance and reinsurance operations are driving significant AuM increases for Apollo in recent months, as the trajectory was seemingly unstoppable and the company put firepower to work in new re/insurance related deals.

At the end of Q1 2020 Apollo reported that its permanent capital in Athene and Athora amounted to $140 billion, with almost $125 billion coming from the life and retirement reinsurance float generated by Athene.

That risen by almost 61% to $225.2 billion at the end of the second-quarter of 2020, with Athene adding 32% in inflows to reach $165.1 billion and Athora impressively growing its permanent capital by a massive 288% in the quarter to reach $60.2 billion.

These are enormous numbers and cast a shadow even on Berkshire Hathaway’s insurance float pot of capital.

Apollo also said that it has $47.4 billion of dry powder available across the group, ready to be put to work in private equity investing, insurance or reinsurance deals, or other areas of its operations.

“Despite a continued volatile market backdrop during the second quarter, Apollo once again delivered strong growth for our investors, reinforcing the value of our integrated global investment platform,” explained Leon Black, Founder, Chairman and Chief Executive Officer.

“Following the completion of two significant transactions which reflect our continued leadership in insurance solutions, combined with other inflows and market appreciation, Apollo’s total assets under management grew by nearly $100 billion during the second quarter and have surpassed $400 billion for the first time in our history.

“Over the last twelve months, Apollo’s total AUM has grown by 33% to reach $414 billion as of June 30, 60% of which is in permanent capital vehicles.”

Permanent capital, which is largely related to Athene and Athora, drove $206 million of fee income for Apollo in Q2 2020, up from $190 million in Q1.

That figure should rise much higher as the next few quarters progress and the increased AuM begins to deliver profits for Apollo.

Alongside the growth in assets (or float) from its insurance and reinsurance businesses that is generated by putting its own capital to work, Apollo is now also putting third-party capital to work to assist subsidiary Athene.

The group has been deploying investor capital using its third-party capitalised sidecar vehicle for life and retirement investment opportunities, the Athene Co-Invest Reinsurance Affiliate (ACRA).

Commitments to the Athene Co-Invest Reinsurance Affiliate (ACRA) insurance-linked sidecar vehicle reached $3.2 billion earlier this year, and the sidecar structure started to deploy capital into large deals such as funding 63% of a $27 billion fixed annuity block reinsurance transaction and investment in a subsidiary of Prudential plc.

Apollo today reported that ACRA Re Ltd. now has close to $40 billion of assets under its control, which is a huge pot to have generated from $3.2 billion of third-party commitments.

It shows how Apollo and Athene are leveraging insurance-linked securities (ILS) like structures and investor appetite for reinsurance returns as a new lever that can generate faster float accumulation across its insurance business, making its own capital go further and work harder in the process.

The Apollo story is always an impressive one, but as they move towards the half a trillion dollar AuM mark, it will be interesting to see how the group uses third-party capital to lever up what it can do and accelerate the accumulation of investment float from the insurance and reinsurance sector.