While others will dissect the numbers ad nauseam – I enjoy spending the majority of my time examining strategy, both to improve the internal and external surface areas of a business. To that end, that requires an investment in a company where the balance sheet is theoretically not an issue and non-GAAP earnings are not twisted beyond general utility. While some may disagree, I believe Apollo fits this bill.
To that end, a few things stood out to me from the Q4/FY21 earnings call. They all fall under what I would label as culture.
First, employee culture. While I absolutely can’t describe what is happening internally at Apollo post departure of the broken former CEO, Leon Black, nor the supposed heir apparent Josh Harris, it is clear that the management team (via Marc Rowan) has placed culture at the forefront of strengthening the platform. He has mentioned culture as the single most important thing that Apollo needs to get right. In his words, “culture beats strategy everyday.” You can’t change culture on a dime, you often can change quickly alter strategy. He outlines that Apollo culture is anchored by “the clear strategic vision, the authentic nature of the people they meet and our cultural values.” To that end, the one metric we can look at to understand progress is turnover, and “turnover is the lowest it has been in a very long time.”
Second, investment culture. The problem to be solved is sourcing excess returns for clients at the same or less risk than a passive benchmark. While other competitors such as Blackstone, KKR, etc. have shifted to thematic based investing, such as Blackstone going all in on industrial real estate in massive size, Apollo has stood by its legacy values of not constraining one’s self to one theme. It goes where the complexity is greatest and where others don’t want to be seen. Examples include recent PE acquisitions of Yahoo/AOL, Lumen’s fiber carve out, Michaels, etc. Not names you would expect for a fund that has an IRR in the 40s gross, low 30s net to investors. Rowan indicated:
They are perhaps the only mega-cap alternative investment firm pursuing this strategy alone versus swimming with the pack pursuing late cycle growth investments.
Third, execution culture. Apollo laid out a series of 5 year targets as recently as October. The general idea was (1) double AUM by expanding origination from ~$60B -> $150B, (2) expand retail distribution, and (3) double capital markets revenue. Simply put, they have made massive progress on all three in less than 6 months.
After a string of origination platform acquisitions or JVs, Apollo is at a run rate of ~$100B in annual origination already. The acquisition of Griffin accelerated their retail distribution strategy by ~18-24 months and Apollo Debt Solutions is in market with ~$1B raised in the back end of Q4. And capital markets, Apollo originated a mammoth $4B loan to Softbank’s Vision Fund 2, as Softbank reels from declines in tech investments. While its still early days, it’s clear that the Apollo team sets goals that are aggressive in absolute (doubling one’s business in 5 years is no small feat), but execution against these goals is rapid as a result of the focus Rowan has put on the organization (via clear strategic vision).
To boot, the stock sells at about 10x 2021 earnings. And that’s a small part about why I like owning shares in the business.