管理層發言
Good morning, and welcome to Apollo Global Management's Third Quarter 2025 Earnings Conference Call. 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 will now turn the call over to Noah Gunn, Global Head of Investor Relations.
Thanks, operator, and welcome again, everyone, to our call. Joining me to discuss our results and the momentum we're seeing across the business are Marc Rowan, CEO; Jim Zelter, President; and Martin Kelly, CFO. Earlier this morning, we published our earnings release and financial supplement on the Investor Relations portion of our website. As you can see, very strong third quarter results demonstrate the exceptional strength that we are seeing. We generated record combined fee and spread related earnings which drove adjusted net income of $1.4 billion or $2.17 per share, up 17% year-over-year. In addition to the rich commentary, we prepared for you on this morning's call, we'd like to announce that we will be hosting an extended fixed income call session for Athene this quarter on November 24. And with that, I'll hand it over to Marc.
Thank you, Noah, and good morning. I'm excited to be here today and to share some great news. Our third quarter results were outstanding. We reported FRE of $652 million, which represents a 23% increase from the previous year, with management fees growing by 22% and ACS fees reaching $212 million for the second consecutive quarter exceeding $200 million. The SRE, excluding notable items, amounted to $846 million. For those focused on estimates, we anticipate Q4 SRE to be around $880 million, putting our estimated full-year SRE on a comparable basis at $3.475 billion, reflecting about 8% year-over-year growth, surpassing our earlier mid-single-digit target. These financial results reflect strong underlying fundamentals, particularly in origination, which we view as the cornerstone of our business. This quarter, origination was robust at $75 billion, led by our platforms, marking our second best quarter following a record Q2. Our average spread on origination held steady at 350 basis points over treasuries, with an average rating of BBB. The strong origination has led to significant inflows of $82 billion for the quarter, with $59 billion from asset management and $23 billion from retirement services; the asset management figure includes $34 billion from Bridge, leaving $26 billion in inflows excluding Bridge. Our assets under management reached a record $908 billion, a 24% increase year-over-year. In summary, our growth mechanisms are in full motion. Jim and I will discuss the various reasons for this positive momentum further. We believe it stems from effective management, and the team has worked exceptionally hard to deliver these results. We are also fortunate to be in an industry experiencing robust demand, as firms like ours contribute significantly to fundamental economic growth globally. We benefit from three strong trends: financing a global industrial renaissance, addressing a retirement income gap prevalent across the Western world, and providing alternatives to increasingly concentrated public markets. These three factors drive our business, and we are not alone in recognizing this opportunity. Historically, our industry relied on a small segment of institutional clients known as alternatives, but more recently, we have accessed individual investors and recognized the potential of insurance company balance sheets as long-term holders of private assets. Institutional clients are now actively considering private assets, and traditional asset managers are increasingly including private assets in their portfolios, highlighting a shift in investment strategy. We also see a growing market in 401(k) and related retirement plans. Thus, as our industry evolves and expands, we are supported by strong foundational trends that benefit the economy and society as a whole. The appetite for private assets is clearly increasing. We particularly focus on origination to ensure steady growth and adherence to our fundamental principle of achieving excess return per unit of risk. Additionally, we are committed to maintaining our standing as a preferred employer. While we are confident in our credit positions, our industry remains focused on finding quality investments rather than merely raising capital. We are dedicated to managing risk effectively, ensuring our clients' trust is well-placed, and positioning ourselves at the forefront of innovation in the asset management space. Our asset management for this quarter shows positive performance across all areas, leading us to take a cautious approach as we anticipate future risk. We maintain our objective of delivering returns without undue risk by being selective and innovative. Our latest funds and strategies demonstrate this commitment. Ultimately, we look forward to future discussions regarding growth in asset management and our retirement services, where demand continues to rise. We have seen remarkable inflows and positioned our business for a record-breaking year, thanks to disciplined origination and innovative solutions. Overall, Q3 has proven to be an exceptional quarter, paving the way for a promising future for both asset management and retirement services. I will now pass it over to Jim Zelter.
Thanks, Marc. Having navigated credit cycles for more than 4 decades, I can tell you we've seen this one before. Isolated incidents are nothing new, and they're rarely a signal of broader stress. As we remain vigilant in our underwriting and risk management efforts, what we're seeing is idiosyncratic, not systematic. Over the years, there has been a propensity to overemphasize short-term technical headlines and overlook the broader direction of travel within our industry. Broad secular forces such as the increasing economic activity generated by private companies, the global industrial renaissance as well as massive capital fueling the global industrial renaissance are driving increased demand for global private credit, in particular, investment grade. At the same time, demographics and the expanding needs of retirees globally are driving the secular demand. This is the foundation of our business. We've leaned into senior secured top of the capital structure investments to serve a market that we believe exceeds $40 trillion. As you can see from our growth, that has served us well, and we are just beginning to scratch the surface. Recent events give us a moment to step back and reflect on the marketplace, and I believe there is an important point to be made here, whether a particular transaction is public or private is simply the manner in which the risk is originated. Ultimately, it is not the litmus test for credit quality. Our disciplined underwriting as an origination principle, not an agent or a tourist across both public and private markets has allowed us to be trusted stewards of our investors' capital through various market cycles and position us for continued success. We look forward to leading and performing in a marketplace with a dispersion of returns. On origination, let me put the quarter and the origination engine in perspective. As Marc mentioned, we generated $75 billion in the quarter, a remarkable number and second only to last quarter's record. This brings origination volume to over $270 billion for the last 12 months, up more than 40% versus the prior period and effectively achieves our multiyear target about 3 to 4 years early. We're encouraged by the early momentum and the capacity we have to scale. Results like this can only be driven by the full breadth and diversity across our business, platforms, core credit, high-grade capital solutions, equity, and hybrid. Within core credit, volumes were led by large-cap direct lending, commercial mortgage lending, and residential mortgage lending. Across our 16 platforms, origination volume increased more than 20% year-over-year, and MidCap was a standout, which continued to perform very well and generated more than 30% growth year-to-date. These are companies that we are providing real solutions at scale. This highlights and connects to our broader sponsor solutions ecosystem, which has more than tripled in recent years, growing from $20 billion in volume in 2022 to nearly $70 billion over the last 12 months. We believe our offering is unmatched in its scale, speed, and ability to deliver full firm solutions with a toolkit that includes not only direct lending, both large and MidCap, which is where many of our peers end, but also fund finance, asset-based finance as well as other capabilities. Taken together, our sponsor ecosystem is unmatched in scale and speed and the breadth of the solutions we deliver. Let me bring this to life with two recent examples of our origination leadership. First, in support of Keurig Dr Pepper's strategic objectives, we called a financing solution totaling $7 billion that was announced last week. This was yet another example of our leading position in the high-grade capital solutions and hybrid marketplace by providing flexible capital solutions. The second transaction I'd like to highlight is yesterday's announcement with Ørsted where our funds will acquire a 50% stake in Hornsea 3, a 3-gigawatt scale offshore wind project for $6.5 billion. Alongside transactions we announced this year for ED&F, RWE, and BP, this is the latest large-scale transaction in Europe, where we are investing behind energy, critical infrastructure, and transition assets in the region. Our activity in providing IG capital solutions to large-scale companies in Europe is unmatched. Looking across all of our origination in the quarter, $69 billion was debt comprised of approximately 70% investment grade with an average rating of A- and approximately 30% sub-investment grade with an average rating of B. On the investment-grade origination, we generated excess spread of over 285 basis points over treasuries or approximately 200 over comparable rated corporate indexes. And in our sub-IG origination, we generated excess of 400 basis points over treasuries or approximately 220 basis points over comparably rated high-yield corporates. Importantly, we observed stable spreads on our origination quarter-over-quarter, and that's particularly notable in a period where public market spreads are near generational tights. Producing excess spreads at scale is a clear testament to the solutions we deliver. While our existing origination engine continues to scale and has driven incredible results, we're not standing still. In the past few months, we have added several new resources that will augment, grow, and diversify these origination capabilities. Number one with Olympus Housing Capital is a new homebuilder finance strategy sitting at the nexus of multiple secular tailwinds between structural undersupply of single-family homes and demographics. Stream Data Centers strengthens our presence in digital infrastructure. TenFifty is our new European CRE lending platform focused on structurally underserved small- and medium-sized CRE markets. And finally, we announced the launch of Apollo Sports Capital focused on the sports and live events ecosystem in a market that continues to exhibit strong uncorrelated growth and faces significant capital demands. This will be a permanent capital vehicle primarily focused on credit and hybrid opportunity, and ASC is designed to be a long-term value-added marketplace player, leveraging our infrastructure in credit and media and physical assets. In capital formation, momentum remains exceptionally strong this quarter. We brought in $82 billion, including $49 billion of organic inflows, nearly matching last quarter's record as well as $34 billion from our closing of the Bridge acquisition. By channel, the institutional channel remains strong, and Global Wealth had another excellent quarter with Athene continuing its remarkable trajectory. Across institutional and Global Wealth within the $26 billion of organic inflows during the quarter, 80% were focused on credit-oriented strategies and 20% to equity-oriented strategies coming from a broad array of investor classes. The $5 billion we raised in the wealth channel was the second best quarter on record, bringing year-to-date total over $14 billion, up 60% over the prior year period. And strength in this quarter was broad-based with six strategies raising more than $200 million and ten strategies raising greater than $100 million. With that success, one strategy stood out as Marc mentioned, ABC, which had its strongest quarter since launch, raising nearly $400 million. The asset-based focused corporation has all the makings of our next flagship, deep expertise, strong performance, and accelerating demand. Again, this trajectory reminds us of ADS since ABC is a similar point, but with a major focus on investment-grade counterparty risk. Across wealth, our distribution continued to expand. We launched three new LTIPs during the quarter, expanding our lineup and broadening access to Apollo private market strategies across EMEA, Asia, and Lat Am. It's clear our offering continues to resonate with investors around the globe, and our partners are not simply looking for a good product; they are increasingly looking for a comprehensive, holistic solutions provider in constructing portfolios.
Thanks, Jim. Good morning, everyone. Our third quarter results highlight clearly the accelerating momentum across our platform, reaffirming our ability to execute consistently on our long-term plan. I'll take a few minutes to walk through the quarter's financial performance and discuss the key factors supporting our progress as we close out the year. I'll then share more details on the outlook for 2026 to supplement Marc's comments. In asset management, we generated an increase in both assets under management and fee-generating assets under management of 24% year-over-year to $908 billion and $685 billion, respectively. We generated fee-related earnings of $652 million in the quarter and $1.8 billion year-to-date, up 20% year-over-year in each quarter this year versus the comparable period, evidence of the momentum across the platform and keeping us firmly on pace for a full-year growth rate of 20%. In the quarter, we delivered 22% year-over-year growth in management fees, driven by third-party asset management inflows and record gross capital deployment, particularly across our credit platform as well as strong growth from retirement services. Capital Solutions fees of $212 million, as highlighted, represent our second strongest quarter on record. The breadth of origination capabilities was very clear this quarter, with 50% of ACS fees generated by our hybrid value, opportunistic equity, climate transition, and real estate businesses, complementing the other 50% from our high-grade and global credit businesses, including Atlas. We generated 28% year-over-year growth in fee-related performance fees, reflecting sustained growth in spread-based income across a variety of our perpetual capital vehicles, led by ADS and complemented by Redding Ridge and MidCap among other platforms. Growth in fee-related expenses reflects continued investment in hiring and infrastructure to support the firm's global strategic growth initiatives, compensation growth reflecting our performance this year and the inclusion of Bridge into our financial results. We closed the acquisition of Bridge on September 2, which significantly enhances our existing real estate business, bringing to scale some of the most attractive areas in the market, including multifamily and industrial. Bridge also adds origination capabilities that are highly synergistic with existing asset demand from Apollo's ecosystem, in particular, Athene. Bridge will initially contribute approximately $300 million of annual fee-related revenues across management fees and ACS fees and approximately $100 million of pretax FRE with expenses principally compensation based. Bridge will also contribute to SRE growth as an originator of investment-grade spread products as well as principal investing income over time. Excluding Bridge, our FRE margin was stable quarter-over-quarter and expanded approximately 120 basis points year-to-date, demonstrating continued scaling of our business. Including Bridge, we expect our full-year 2025 margin to be consistent with 2024. Moving to retirement services. Q3 delivered another strong organic growth quarter, supported by $23 billion of gross inflows. Athene's net invested assets grew by 18% year-over-year to $286 billion. We generated $846 million of SRE excluding notables for the quarter with an additional $37 million or 5 basis points at our long-term 11% return expectation on the alternatives portfolio. The blended net spread ex notables in Q3 was 121 basis points versus 122 basis points in the prior quarter, reflecting the effect of roll-off of existing assets and liabilities, offset by new business growth. Athene's core earnings power is very strong and clearly evident in the third quarter. In a tighter spread environment, we continue to originate new business that meets our long-term ROE targets and that is in line with historical averages. Athene's competitive positioning is unmatched. Over the last 12 months, Athene has sourced new business volumes on par with the entire size of some of its competitors with a capital profile that is self-sustaining, includes the largest sidecar in the industry, and has managed to achieve AA ratings level. During the third quarter, we took hedging actions to further reduce the size of Athene's floating rate portfolio. Net floating rate assets totaled $6 billion or 2% of total net invested assets at quarter end. Adjusting for these actions, Athene's SRE sensitivity on net floaters from a 25 basis point move in short-term interest rates is now approximately $10 million to $15 million versus $30 million to $40 million previously. In the context of the year, Q3 was a very strong quarter with earnings trending higher than our first half average, reflecting the impact of higher new business volumes and our ability to originate attractive investment-grade investment opportunities. Importantly, we believe our spread-related earnings troughed in the first half of 2025. Looking across the asset and liability profile of the portfolio, we see asset prepayment headwinds peaking through Q1 of '26, and the spread drag from profitable COVID era business dissipating in 2026 relative to 2025. For the fourth quarter, as Marc suggested, we anticipate SRE excluding notables to be approximately stable to Q3 at an 11% alt return or approximately $880 million with an equivalent SRE spread of 125 basis points. Combined with year-to-date performance behind us, this result would drive full-year growth of approximately 8%, ahead of our mid-single-digit target. Importantly, with the business executing at a high level, expectations that headwinds experienced in 2024 and 2025 are starting to dissipate, and exposure to floating rates largely immunized, the exit velocity into 2026 is strong. Turning to our 2026 outlook. We expect over 20% growth in FRE in addition to the earnings from Bridge. Momentum across our core business is building with management fees showing increasing growth each quarter on an LTM basis. Recent growth initiatives, including across wealth, credit, and origination are translating into tangible results, evident in our strong quarterly and year-to-date performance. We expect that roughly 75% of our top line growth in fee-related revenue in 2026 will be attributable to fundraising and deployment from existing well-established businesses as well as the annualization of growth already in the ground coming out of 2025. The remaining 25% of top line growth is expected to come from new initiatives already underway from Apollo Sports Capital to Athora's pending acquisition of PIC as well as a variety of other new strategies in the pipeline. And to clarify, we expect this over 20% FRE growth next year is without any contribution from our next flagship private equity fund, Fund XI, which we currently estimate will turn on sometime in the first half of 2027, subject to our pace of PE deployment. For SRE, we anticipate 10% growth in 2026, assuming 11% alts returns and including notables year-over-year. This outlook is underpinned by strong organic growth and our origination capabilities, which generate high-quality assets with spread. We expect prepayment headwinds to diminish as a result, both of our reduced purchases of CLO assets and the already high prepayment levels we are experiencing at today's very tight AAA CLO spreads. We further expect the headwind from the roll-off of profitable post-COVID business to have already peaked in 2025. As Marc alluded to, we have various choices and management actions to help us navigate the path forward such as managing our floating rate position, optimizing our back book of assets, utilizing sidecar capital, and prudently managing crediting rates. Our 2026 outlook embeds the current forward rate curve, which contemplates three total cuts by year-end '26 and 9.5 total cuts over the cycle and assumes the current tight market spread environment persists. Acknowledging these growth expectations, we expect and caution that there will be normal quarterly deviation around the growth trend line, reflecting the scale of an approximately $400 billion balance sheet. Looking beyond 2026, we remain confident in our long-term FRE and SRE average annual growth targets of 20% and 10%, respectively, through 2029. We expect the earnings mix shift towards FRE will result in FRE equalling SRE sometime in 2028, a year ahead of our expectation and exceeding SRE thereafter. Lastly, on capital, we executed over $350 million in share repurchases during the quarter, the majority being opportunistic. The sequential growth in our share count reflects this activity as well as the shares issued in connection with closing the Bridge transaction. And with that, I'll hand the call back to the operator. We appreciate your time and welcome your questions.
分析師問答
Today's first question is coming from Steve Chubak of Wolfe Research.
So I wanted to start with a discussion just around the origination targets that you unveiled at Investor Day. Annual origination volume of $275 billion, you just reported origination activity at an annualized clip of more than $300 billion. Last quarter's volumes were even better. So taking a step back, as we think about the year-to-date origination strength, which is running ahead of plan, ongoing expansion of origination capabilities with both you, Marc and Jim had discussed in your prepared remarks, has your thinking changed as to whether this is still an appropriate target? And just what informs your outlook over the next few years?
It's a relevant question given our strong start. The perspective Marc and management have shared about origination being crucial really connects to our discussion about the broadened universe of buyers, expanding beyond just alternatives to the other categories Marc mentioned. This opens up opportunities for us in product development and solutions for investors and retirees. However, while we're pleased with our accelerated success and the significant achievements we've made, it's too early to adjust our five-year projections merely nine to twelve months into our plan. We have great momentum, and these early successes won’t detract from future growth; it’s a positive trajectory. For this call, we aren’t ready to provide a new five-year estimate, but as Martin pointed out, it's all about the flywheel. Next year, seventy-five percent of our growth will come from our existing vehicles, funds, and strategies, which drive this flywheel of origination. This gives us increased confidence in achieving over 20% FRE growth in the upcoming years.
I wanted to start with a question around the wealth market for Apollo broadly. A couple of really strong quarters, $5 billion of flows in the third quarter. You talked about the new product pipeline. And Marc, I was intrigued by your comments around the asset management partnerships broadly. So maybe you could expand a little bit on how you view this $5 billion trajectory from here? How much is likely to come from new products or the existing lineup? And when it comes to the sort of asset management partnerships, maybe expand on what that could look like for Apollo over the next couple of years.
Alex, I want to start by mentioning that during our Investor Day last fall, we projected reaching $150 billion in aggregate over the next five years, and we are still on track for that. I'll hand it over to Marc now. What we’ve observed is the product suite we’ve developed over the past 24 to 36 months is expanding significantly in terms of product offerings and geographical reach. You can expect more solutions-oriented approaches, especially through the six channels we’ve discussed. Now, I'll pass it to Marc to elaborate on those six channels.
So Alex, consider this. In the Global Wealth business, the highest tier consists of our family offices. Apollo, along with the industry, has chosen to engage with these accounts directly. The next level includes high net worth individuals, though the definition of high net worth can differ among firms. For us, think of clients who are significant enough to warrant a financial intermediary, like a registered investment advisor or a wealth manager. We connect with these accounts indirectly by working through the RIA and the wealth manager, but we generally do not engage with individual accounts. We've only touched on a tiny segment of the marketplace, as most clients do not fall into the high net worth or family office categories. Neither our industry nor ourselves target these accounts, and I believe that our strategy is to avoid pursuing them. They are typically well-served by their existing asset management relationships and may not be inclined to invest exclusively in private products due to reasons like lack of knowledge, suitability, or liquidity. Instead, I anticipate they will gain exposure to private assets through their traditional asset managers. You can see this in our collaborations with State Street, Lord Abbett, and similar efforts within our industry. I expect significant growth in partnerships, which will not only involve new products but also the integration of private assets into existing portfolios. This growth will likely occur at a rapid pace in the wealth market, represented by millions rather than incremental fundraising every quarter. Therefore, as an industry, we need to adapt, particularly regarding innovation. We must recognize that we operate within a public ecosystem. For instance, we aim to offer daily net asset value for our fixed income products by the year-end. Providing daily NAV has become essential for collaboration with traditional asset managers. Our initiatives focused on transparency and liquidity, which some in the industry may resist, are critical for gaining access to these managers. The more we foster accessibility to private assets, the more those with the ability to originate and produce these assets will succeed. This is our current position, and I'm enthusiastic about the developments ahead. I believe there will be sustained demand for private assets over time, with our conversations increasingly centered on quality and the ability to originate. We must also consider whether we, as a firm and industry, have made the necessary decisions and adopted the right practices to engage in these alternative environments.
I'm sure you've seen, but Colm Kelleher is on the tape this morning warning on private letter ratings arbitrage in U.S. insurance being "looming systemic risk." Firstly, what are your thoughts on that view? And then perhaps more specifically to Athene, can you remind us to what extent Athene is using similar private letter ratings in its own portfolio?
First, Colm is highly regarded in the banking sector. Unfortunately, I am not in Hong Kong this year as I usually am after his remarks, which allows us to engage with the audience. Speaking specifically about Athene, I believe Colm is mistaken. For instance, Athene does not rely on Egan-Jones, and less than 8% of our assets are rated by Kroll or DBRS. We have 70% of our assets rated 2 or higher, with S&P, Moody's, and Fitch rating half of our fixed income assets. Kroll accounts for 18%, and DBRS for 15%. It's worth noting that DBRS and Kroll excel in structured products and compete effectively with Moody's, S&P, and Fitch. I’m not suggesting they are any less qualified than the major three. In comparing the insurance industry to banking, we see that banks primarily hold private credit, which often lacks ratings. In our industry, while some firms may not follow our approach, Colm raises valid concerns about systemic risk. Much like banking, there are strong and weak firms in insurance. However, I don't think the focus should be on private letter ratings. I maintain that we have significant offshore jurisdictions that do not align with U.S. ratings and regulatory reforms, particularly highlighting Cayman, though there are others as well. Colm's concerns about systemic risks accumulating are not unfounded at this stage of the credit cycle. However, I think it’s an oversimplification to shift the conversation from banking to insurance. Recent financial troubles mainly stem from the banking sector, particularly in credits underwritten by banks. Ultimately, the distinction between public, private, and bank credit is whether or not it's syndicated. There are both good and bad entities in banking, asset management, and insurance. I believe this is not primarily about systemic risk, but rather late-cycle behavior and identifying bad actors who will be held accountable. Similar to banks facing contagion risks from incidents like those with SVB and First Republic, our industry carries contagion risks as well. We must be transparent with our investors about our credit underwriting philosophy, how we manage our products, and the operations of our insurance company. On our largest balance sheet, Athene, we have less than 0.75% in direct lending, with over 90% being investment grade, which presents a different scenario than the banking system, where only 60% is investment grade.
I just want to circle back on the wealth management opportunity. One of the pushbacks we get for Apollo and the industry at large is just as rates come down, the demand for yield or income will come down and the industry will suffer from rotation risk. I was wondering if you could address what you're sort of seeing and how you think about that. And then as you look out to 2026, I wonder if you could just lay out a little bit more detail the road map in terms of what drives the incremental growth from here.
So it's Marc. I'll begin with a philosophical perspective, and then hand it over to Jim for more specific insights. Private lending was a stronger business in the past few years. I wish I had invested in Nvidia during that time. Many people miss the point that the shift into private credit is a move away from equity. That's what we are observing; investors are choosing to reduce risk because they see the potential for long-term equity returns in first lien debt at the top of the capital structure as an appealing opportunity. However, we cannot ignore that there was more value in the past, similar to the equity market. We are currently examining our position in the valuation cycle and the alternatives we offer. I believe prices are elevated, long-term rates are unlikely to fall significantly, and geopolitical risks have increased. Therefore, as a firm, we are focused on reducing risk. We advocate for risk reduction, and our balance sheet reflects this. The flows into private credit, particularly in the form of leveraged lending, indicate that investors are indeed reducing risk and reallocating funds from equities to private credit vehicles.
Yes, I agree with Marc's comments. However, I believe many are viewing direct lending with sponsors too narrowly. Even though spreads have compressed compared to safe public markets, there is still a significant difference. For instance, you're seeing SOFR at 450 to 500 while classic high-yield is under 250; hence, returns remain appealing. The common mistake is focusing on recent tactical market movements rather than the long-term changes. I just returned from a lengthy tour covering nine countries, and the demand for evergreen compounding retirement income is immense. This demand far exceeds the $1.6 trillion in the direct lending market. We consistently find opportunities to generate high-quality, robust yields across various regions globally. This trend is persistent, especially as interest rates have risen over the last five to seven years, leading many pensions to fully fund and explore various immunization strategies. Although the current environment might be less attractive than it was two to three years ago, we advocate for positioning at the top of the capital structure with no payment-in-kind and reduced software investments. Nevertheless, this should not be mistaken for a lack of sustainable advantages in the market.
We wanted to come back to Marc's comments on the six markets, including several newish markets like the traditional asset management and the $12 trillion U.S. 401(k) channel. What type of share do you think the alts will eventually take on both the traditional and the 401(k) markets? And also, what investments does not just Apollo, but the entire industry need to make in order to prepare the origination platforms to address this much larger TAM?
So I start with traditional asset managers because I think there is a natural limit. Right now, inside of a number of vehicles, you have a 15% limit. And most of the investors do not bump up against this 15% limit. And so back of the envelope, we think that there is potential, which is different than a forecast of roughly 10% of traditional asset managers. If you look at what some of the traditional asset managers who have been large investors in privates before, they own SpaceX. They own OpenAI. They own a number of the other large-cap growth companies. We have, for a long time, just thought that this applied to this unique network. It doesn't. It will not surprise me to see 20 large industrial companies that stay private for a longer period of time, in addition to all of the credit and other vehicles. And so I think you will get a good sense of this in the first quarter next year as some of the partnerships that are under discussion begin to get announced and begin to get rolled out. And again, the prize for the industry is not just the creation of new products. And we will create new products as we have and as others have. I think it is getting a share of in-place assets as traditional asset managers compete for rate of return and through performance for clients. Almost no one else in the traditional asset management industry has the $35 billion that BlackRock has. If you're watching what BlackRock is doing and you're in a traditional asset management mode, you're looking to figure out how you get private market exposure. I believe they will get private market exposure through partnerships, through relationships. And what we need to do is not just invest in origination. We need to invest in infrastructure. We need to invest in business processes. We need to embrace transparency and disclosure because traditional asset managers will not move in size into the private marketplace unless we can do things like daily NAV, unless we can provide price, unless we can provide liquidity. A whole new set of skills is going to be needed to be learned by our industry. And I believe that we have a leadership position in this and have embraced this as a methodology of how do we do business going forward.
Yes, Craig, and I would just add that I think many of us in the industry two, three years ago thought that the promise land was just getting our products on their platform, which they would deliver and distribute. And that's worked for some. It's not worked for many. And as Marc mentioned, when BlackRock made their variety of purchases, there are many income funds, there are many total income funds that have a basket, and I think servicing them in partnership. It's very similar to the bank alternative credit provider. There's a view that it's a black-and-white war. It's actually much more open architecture. It's much more problem-solving together. And this is just one of the many distribution channels that we believe you'll be able to service going forward, just like in a place like a variety of firms that are using models and OCIOs, the ability to cover those folks with actual product solutions as well, not just funds. So it's really a much more open architecture view of how you partner with your origination, which is the scarce attribute.
Sorry, one more on this topic because I think it's so interesting. So I'm a believer. I think you infusing some of your private market origination can produce better returns, better diversification, even maybe turn their outflows into inflows for some of these products. My question is how do you get a traditional manager to give up some of the assets and therefore, some of the fees in order to make this investment and turning around their products or making them more appealing to their investor base?
So Glenn, it's Marc. I'll speak to it. But first, just to -- we were apparently exceptionally long-winded, all three of us. So we are going to cut the call at 9:45, Noah tells me. Anyone we miss, we will make it up to you as we go. But I start this way, Glenn. When we cover a client, we cover wealth; we have a massive infrastructure, hundreds of people, lots of expense in doing it. When we cover a traditional, we're essentially leveraging their distribution. The ability of us to provide a portion of our fee, and you heard me say this on this call, is actually margin accretive for us, and it's margin accretive for them. If we can give them good performance and we can turn outflows into inflows or if we can give them a unique client solution, we can give the client another reason to stay with the asset manager. That's a win. And for us, I think we're going to be in a situation where over time, we have excess demand for private assets versus the supply of private assets. And we should be looking at balancing and protecting and diversifying our distribution, but also for distributors who can remove cost on a net basis from our system. We should embrace them and pay them accordingly.
Just wondering if you could unpack a few more of the details around the 2026 SRE guide. And how should we be thinking about gross flows, outflows, the level of spread? It sounds like versus at least prior expectations, the decline in spread over the next couple of quarters should be much lower than expected. So any other details you can share a utilization just as we're kind of fine-tuning models after the results?
I'll start by summarizing our situation before passing it over to Martin. At the end of last year and the beginning of this year, we encountered three distinct challenges: headwinds from interest rates, prepay headwinds, and the loss of highly profitable business due to contracts initiated during COVID. As Martin mentioned, we have now taken a deep dive to understand the details of our prepays and the impact of rolling off business. With a clearer picture and having stabilized rates, we now have a better and more predictable understanding of our position regarding SRE, although we still have to consider the fluctuations associated with maintaining a $400 billion balance sheet. On the 24th, we plan to dedicate more time to this topic to assist you in refining your models. However, to reiterate, I don't anticipate significant changes in ADIP II utilization, as well as gross flows, inflows, or outflows.
Yes. I won't say much more given the 24th, but base assumptions remain unchanged. The one other point I think, which is relevant is we're clearly outperforming in '25 relative to the prior guide that we indicated, and that also has a run rate benefit jumping off into 2026. And so we've written this year-to-date almost in nine months, almost the entire volume that we wrote last year. We will be likely close to but not quite at the 5-year average on top-line growth in year one. And when you pair that with a very strong sort of robust origination environment with the spreads that we've been able to achieve and the rate actions we've taken, that all sort of gets to a more healthy jump-off point into '26 with a sort of similar baseline set of assumptions, and we'll unpack that more.
With the capital markets world opening up more and OpenAI moving towards an IPO in '26, do you think this open capital markets environment and those companies moving from the private bucket to the public market will cause a natural inflow of public dollars back into those private assets from those asset managers you mentioned?
It's interesting. The last 6, 8 weeks, Amazon, Google, Meta, Oracle and several others have issued jumbo IG issuance. At the same time, we had a record quarter. These needs are so vast and so great and global that temporary flows into the public IG market, which is a necessary portion of the overall multitrillion funding, it's going to be funded by all markets. When you look at the capital structure in the future, you'll have a company that will have a broadly syndicated facility, they'll have public IG, they'll have private IG. That is the way of the world. And so when a company can and scale issue in the public IG market, they should. But as we've talked about, a company like we announced, whether the two that I mentioned on the call, Keurig Dr Pepper or Ørsted, very unique financing needs that the public market solution is not going to check the box. So it's not a black and white winner take all; it's open architecture like you've seen in other financing markets.
I wanted to ask about the partnerships with the traditional asset managers that you were alluding to earlier. I was hoping you could elaborate a bit on how you anticipate these partnerships evolving, what the different flavors might look like and what scenario might it make sense to maybe even acquire in some of those types of firms as opposed to partnering? And then if you could just speak to market making around your aspirations and steps you're taking there as you look to support the development of the marketplace.
Mike, I want to highlight a few points we’ve discussed previously. You’re aware of our partnership with State Street regarding the ETFs and our conversation with Lord Abbett about the short duration vehicle. What Marc and I, along with our partners, are conveying is the evolution of our approach. Ten years ago, private direct lending was simply an addition to the high yield and loan markets, acting as a third option. Many are questioning the total addressable market size right now, but we believe it's too early for that. Our goal is to make everyone aware that the path to success isn't limited to just distributing our ADS and ABC; there will be a range of open architecture solutions that will emerge as portfolio managers and trusted investors in traditional strategies evolve. We’re still in the early stages of this journey, and we aspire to be a leading voice in this conversation, with a focus on brand and scale. Regarding market making, based on our combined 80 years of experience, we’ve seen that increased transparency, information dissemination, price discovery, and providing investors with accessible information drive the growth of asset classes. I experienced the early days of the high-yield market, which was once known as the junk bond market. Each asset class we’ve observed has benefited from the development of information and ongoing dialogue. As we consider stablecoins and tokenization, a new ecosystem will emerge, and we intend to be at the forefront of that evolution.
I just wanted to ask, I know we're going to get into all the components of SRE on the 24th. But on the alt return, you guys restructured the portfolio about a year ago, laid it out at the Investor Day. The returns have gotten better, but they still have run below that 11% level. I know you guys are assuming a return to the 11% for next year and it's part of the outlook. So what has constrained it even despite the restructuring from getting to that 11% and maybe even seeing a few quarters above it, which you would think with an average would happen? And what's the confidence of the progression continuing to eliminate that gap?
So to summarize, we will discuss this in greater detail on the 24th. Athene's alternative investment portfolio consists of two main parts, with AAA being the largest at 10.9% over the last twelve months. The returns on AAA have been satisfactory, but we are experiencing some cash drag, which we anticipate will decrease as we have a robust pipeline. We are optimistic that, barring any adverse market conditions, we will surpass our target returns. The other segment of Athene's alternative portfolio includes holdings in other insurance assets, such as Venerable, which has significantly outperformed the 11% target. Athora, on the other hand, has underperformed somewhat due to holding excess capital. We believe that deploying this excess capital into PIC, pending regulatory approval, would be highly beneficial for the Athora investment. We expect to see both areas, insurance assets and AAA, align with or exceed expected return targets.
Maybe back to the 401(k) topic. Marc, are you noticing any immediate interest from plan sponsors in adding private investments to their portfolios? I understand it's a long-term focus, but I'm curious if we might see some actual developments this year in the industry. Also, regarding the deaccumulation aspect, you've mentioned the potential for Athene to become involved in deaccumulation strategies for retirement plans. Is that something you expect to gain traction in the next couple of years and possibly create some growth beyond the current $85 billion run rate for retirement service inflows?
That's the hope. We are very focused on the concept of guaranteed lifetime income, which is a straightforward decumulation strategy that retirees have been using. Historically, they appreciated their defined benefit plans because they knew exactly what to expect. However, when moved to a 401(k) self-directed marketplace, many don’t make an active choice and end up sticking with the default option set by their employer. Our goal is to provide guaranteed lifetime income, not through the plan but through third parties on a commercial basis. This is a key focus for us. We might touch on it during the 24th, but it's more likely that we'll outline our guaranteed income strategy. While it’s not part of our five-year plan, we are working on it, believing it will bring added value. Additionally, we're seeing progress in 401(k) offerings. As I noted in previous calls, we've surpassed a couple of billion through various managed account platforms, as people explore these options. However, this isn't a large trend just yet; most are in the information-gathering phase. The guidance from the administration is beneficial, but I don't expect widespread adoption until we receive either guidance in the near term or a ruling that may take longer. This is an opportunity for us to focus on education, and Jim and I pay close attention to the call reports, which we consider very important.
We actually are showing time for one additional question. Our next question is coming from Wilma Burdis of Raymond James.
How do you think about the trade-off between higher volumes versus higher spreads in this ultra-tight credit spread environment? And how does that change Athene's capital efficiency or ROE?
So I don't know that it's just an Athene issue. I think it's across the board. We are in the excess return per unit of risk. And so it's not just spread absolute. It's spread in various marketplaces. And so to the extent we can earn excess spread at the A level or at the AA level, we have different requirements than we do having it at the BBB or BB level. So we see this across the board. For Athene, where we are the capital at the end of the day that supports this, we do not think it is fundamentally intelligent to grow the business without adequate spread. If you do this, you will be the only one who supports it. The reason we have been trusted with the industry's largest sidecar is because investors know that we will not take volume unless we are earning adequate spread. And you bring back one of the themes that I think Jim and I live with, at the end of the day, we and our entire industry are origination constrained. Now the good news is we're doing any number of things to massively scale origination, and there are a number of very positive trends in the world in that regard. But we should not ignore that we are essentially hostage to origination and our capacity to create excess return per unit of risk. That is the promise of private markets.
And I would just add, I think if you look at the last five to seven years, how we've navigated our securitized product CLO holdings, we've constantly upgraded, and it's with a view of where we are in a credit cycle. Even though we probably would have on a pencil, we'd have a higher ROE owning more BBB and BBs, we've owned a lot more AAs and As because of the overriding view on credit. So let our actions speak louder than our statements. Thank you all. Look forward to next quarter, and thanks for all your support on the call.
Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.