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Apollo Global Management LLC (APO) Q1 2019 Earnings Call Transcript

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Apollo Global Management LLC  (NYSE: APO)
Q1 2019 Earnings Call
May. 02, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen this is the operator, today's conference is getting to begin momentarily, until that time your line will be place on music hold, thank you for your patience. Good morning and welcome to Apollo Global Management's First Quarter 2019 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 opened for questions.

This conference call is being recorded. This call may include forward-looking statements and projections, which do not guarantee future events or performance. Please refer to Apollo's most recent SEC filings for risk factors related to these statements. Apollo will 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, Client and Product Solutions

Great . Thanks, operator. Welcome to our first quarter 2019 Earnings Call. Joining me this morning are Leon Black, Chairman and Chief Executive Officer, Josh Harris, Co-Founder and Senior Managing Director and Martin Kelly, Chief Financial Officer and Co-Chief Operating Officer. Three other senior members of our team are also participating on this call, including our Co-President Scott Kleinman, and Jim Zelter as well as Gary Parr, Senior Managing Director.

Scott, Jim and Gary will be available during the Q&A portion of today's call. Earlier this morning we reported distributable earnings to comment and equivalent holders of $0.50 per share, which led to a cash distribution of $0.46 per share for the first quarter. The quarter's distributable earnings were primarily driven by pre-tax fee related earnings for FRE of $0.51 per share.

With that, I'll turn the call over to Leon Black.

Leon Black -- Founder, Chairman & Chief Executive Officer

Thanks, Gary. And thank you all for joining us this morning. I am pleased to announce this morning that after much consideration Apollo has decided to convert from a publicly traded partnership to a C Corporation, a decision that we believe will allow a much broader set of shareholders to participate in the exceptional growth trajectory that Apollo has demonstrated not only since our IPO eight years ago, but since our inception nearly 30 years ago. As we've highlighted in the past, we believe Apollo's culture of excellence in conjunction with the strong secular trends across the alternative asset management industry, have been the catalysts for meaningful growth across our integrated global platform. Since our IPO in 2011, we have grown our AUM at a 20% compound annual growth rate and this quarter we surpassed $300 billion in AUM.

We continue to grow our fee related earnings or FRE at a similarly strong pace, and our FRE has been a predictable underpinning of the significant cash distribution to our shareholders, supported by solid margins and high levels of permanent and long dated capital. The same time the funds we manage have meaningful capital in the ground that should drive further cash generation as assets are monetized. All while continuing to invest in what we believe are attractive opportunities, setting the stage for future value creation.

We believe there are a limited number of companies in the public markets that have been able to generate the same pace and quality of growth as Apollo, and then our view the modest tax friction that we expect to experience by converting to a C-Corp should be more than outweighed by the variety of benefits we expect to gain by moving away from our current partnership structure. Throughout our history we have prided ourselves on our relentless focus toward creating value for our investors. And we believe that converting to a C-Corp is consistent with that goal.

We continue to believe our stock is a compelling investment opportunity at current valuations and we hope that by converting to a C-Corp, we can reduce the barriers to owning our stock and close the gap between where we trade today and where we see intrinsic value for Apollo. We analyzed the variety of factors in reaching the decision to convert and we believe there are a number of benefits, including one a simplified structure and the elimination of the K-1 form, two, an enhanced liquidity and the potential for reduced volatility for our stock, three, the potential for inclusion in a number of industries, such as the CRSP, the MSCI and total market indices which is particularly important given the increasing flow of assets into index and passive funds, four, as a C-Corp, we believe it will be easier for many new investors to own our stock, and finally, we have seen an increase in the valuations of our peers that have already converted or announced the conversion.

And we believe that our conversion presents an opportunity for value creation for all of our shareholders. We look forward to continuing this discussion with our current and prospective shareholders.

And with that, I'll hand it over to Josh for some additional thoughts around the conversion as well as our quarterly results.

Joshua Harris -- Co-Founder, Senior Managing Director & Director

Thanks, Leon. And let me also express my excitement to this significant step in Apollo journey as a public company. In conjunction with our earnings release, we also published some materials this morning related to our announced C-Corp conversion, I intend to run through each of the slide, there are a handful of items. I'd like to highlight in addition to the ones that Leon just discussed. First, in connection with the conversion, our dividend policy will remain unchanged. Capital return has been a cornerstone of Apollo's value proposition since we went public, and our shareholders have consistently expressed their appreciation for the ongoing quarterly cash flow.

Turning to the economics of the conversion at the corporate level, on a pro forma basis for 2018, the dilution declared that shareholder cash earnings would have been approximately 5% if Apollo had been a corporation for the full year, given a year with low taxable income in our Incentive business. Looking out over a cycle as realization should increased we expect the dilution could be in the range of 79% per year for many of our shareholders we expect that the ultimate after tax impact will be lower than the corporate level dilution.

On an important note, the bulk of the tax increase will be driven by our performance fees. While the impact to our after-tax fee related earnings should be minimal, since our FRE is already taxed at the corporate rate. We believe that this is a significant given that FRE is the most valuable component in the sum of the parts valuation methodology applied to our business.

At the end of the day, we felt the argument for conversion was compelling and we believe the impact to our financial results should be more than offset by increased investor ability to own shares in Apollo among other benefit. As we note on slide six of the supplemental materials, share ownership of Apollo peers among passive and index funds average less than 1% for publicly traded partnerships versus nearly 7% for C-Corp's and this figure continues to grow.

We expect that the conversion will occur during the third quarter of this year.

Moving on to our results for the quarter. Which highlights the continued growth and diversification across our business I'd like to start with some comments around asset growth, which has consistently remained strong and it's created a stable base for increasing management fees and ultimately fee related earnings. During the first quarter, Apollo saw growth inflows of $25 billion, which included advisory assets from Form 9 Athene acquisition assets from Athora's acquisition of Generali Belgium, flows from Athene, capital raised across various funds such as hybrid value and total return fund an ongoing flows into managed accounts. Over the past four quarters, gross inflows have exceeded $80 billion during a period in which we did not raise a flagship private equity fund over that timeframe.

We have grown AUM by 22% to $303 billion. The robust level of asset raising we have achieved is consistent with the growth trends we've been able to demonstrate not just over the past three to five years, but since our IPO eight years ago. Looking ahead, we remain confident in our ability to drive strong AUM growth across the platform, fueled by the fundraising among strategic capital initiatives, and a variety of vehicles focused on strategies such as natural resources, credit, and real estate, as well as managed account. We have experienced particularly robust growth across insurer, which is been driven by a combination of internal growth acquisitions and reinsurance transactions. Over the last four quarters Athene and Athora have contributed a total of $44 billion inflows. In addition, our third party fundraising efforts through the more traditional channels have generated inflows of $15 billion over the last four quarters. I would also like to highlight the following the segment changes Martin will discuss further. Our real asset business now has $32 billion in assets as of March 31st, which is a strong reflection of the diversification of our investment platform and robust capabilities in real estate and infrastructure.

Turning to capital deployment, we had another solid quarter with $4.3 billion of capital invested across the Apollo platform, in private equity our funds committed an additional $2.3 billion of capital in the first quarter, we closed our first investment for private equity Athene at an insurance during the quarter, Athene also announced two additional transactions, the acquisition of a number of TV stations and other assets from Cox enterprises and the take drive a food retailer smart and file. Hybrid value just recently held its final close at approximately $3.25 billion and we are pleased to announce that the funds are already 15% committed or invested and the pipeline remains solid, our methodical in patient approach and embracing complexity, combined with our ability to source and structure investments in creative and flexible fashion has enabled our funds to deploy capital in what we believe are attractive opportunities.

We continue to identify, and evaluate an active pipeline of investments across a broad spectrum of asset classes, and we are optimistic about our ability to deploy capital at a solid pace. As we've said previously, we believe the valuation of Apollo is closely tied to our FRE, which is largely based on recurring management fees, which we view as predictable and a --predictable growing component of our quarterly cash distribution. The strong AUM growth we've achieved in conjunction with a meticulous approach to cost control have together created the path for robust FRE growth, that we've demonstrated through various market environments. With core FRE growing 17% on a compound annual basis over the past five years, and margins, which are in the mid '50s. We expect to continue driving meaningful AUM and FRE growth across segments, through organic capital raising and continued strategic capital initiatives. In addition, we have approximately $45 billion of dry powder, some of which will begin to earn fees as capitals invested providing some visibility into FRE growth just from the AUM we have available across our platform today.

Going forward, we will remain focused on driving our FRE higher, since it is a reliable source of cash each quarter, regardless of whether we have any significant realization from the funds we manage. We declared a $0.46 per share of cash distribution during the quarter, bringing the total cash distribution over the past four quarters to $1.91 per share. Despite light realization activity over that period.

Lastly, before I turn the call over to Martin, I want to mention we'll be hosting an Apollo Investor Day on November 7, where we will be providing our current with respective shareholders with an update on our strategic objectives and growth expectations over the coming year and showcasing a deep bench of talent we have here at Apollo, we hope to see you all there.

Martin Bernard Kelly -- Chief Financial Officer & Co-Chief Operating Officer

Thanks Josh. And good morning everyone. In addition to this morning's C-Corp news, our earnings presentation issued earlier today reflects some changes which were made in order to simplify our reporting and make it easier for investors and analysts to interpret our results. We also made some changes at the segment level, as we have recategorized certain assets and their associated income and expenses among segments, to better align our reporting with the way these businesses are now being managed under Scott and Jim.

Turning to our results. Starting with distributable earnings. The $207 million or $0.50 per share we generated during the first quarter was driven primarily by fee related earnings. Pretax fee related earnings of $210 million or $0.51 per share. We're complemented by a modest amount of realized performance fees and realized investment income, principally generated by monetization activity in private equity. FRE declined by 18% versus the prior quarter, but grew 58% versus the first quarter of 2018. The lower quarter-over-quarter FRE was driven primarily by lighter transaction and advisory fees.

However, we continue to grow base management fees, which increased 4% versus last quarter and 32% versus a year ago quarter. Advisory and transaction fees of $19 million in the quarter, included co-invest fees related to Fund IX's Aspen transaction. As a reminder, the transaction fees can be variable on a quarterly basis since they are generally tied to the pace of capital deployment. However, for the last three years, transaction and advisory fees have been over $100 million annually. And as Josh highlighted in his remarks, we remain confident in our ability to put money to work with a value non bias despite generally elevated market fees.

I also want to note that as of the first quarter, we are recognizing management fees from under the terms of the proposed amended fee arrangement. As we have noted previously, we believe the revised fee arrangement, we announced together with a theme must September maintains the strong alignment of interest that has since was founded more than a decade ago. There is no meaningful near-term financial impact under the proposed amended fee arrangement as compared to the previous arrangement. But under the revised arrangement, Apollo will now on a base management fee and a sub-allocation fee as opposed to a base management fee and sub-advisory fees under the prior arrangement.

We have presented some new disclosures in connection with the revised arrangement on slide 10 of our earnings presentation. As a reminder, we have moved to a focus on distributable earnings or DE as our primary earnings metric as we feel that this better represents our underlying operating performance and how we manage the business. However, as you saw in our earnings release from this morning, we continue to disclose pertinent information related to returns by strategy and accrue performance fees in order to provide our shareholders with what we believe is the most complete view of performance across the Apollo platform.

Our net accrued performance fees balance grew 12% in the quarter, supported by positive marks across our credit, private equity and real estate businesses. In private equity the public markets rebound in the quarter drove 16% appreciation in our funds public portfolio companies, combined with positive mark to market of 2% for the fund's private portfolio. Our aggregate Private Equity funds appreciated by 4.6% during the quarter.

In credit, we also participated in the rebound experienced across credit markets during the quarter, with positive performance across the funds we manage in corporate credit, structured credit, and direct origination. We believe our patient and thoughtful approach to investing in conjunction with our ability to deploy capital quickly when the opportunity arises, helped our funds perform well over the past six months, a period during which there were significant market volatility.

In times of market dislocation we believe our integrated platform and expertise in navigating various amounts of the credit risk spectrum are important competitive advantages, particularly as our business model affords us meaningful liquidity and patients to invest behind that conviction. Finally in real assets the aggregate appreciation across the portfolio was 4% for the quarter and 6.7% for the 12 months ended March 31, and this segment continues to perform well.

With that, we'll now 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. (Operator Instructions)

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

Alex Blostein -- Goldman Sachs -- Analyst

Hey guys, good morning. So maybe just to get the C-Corp conversion questions out of the way and some of the clean-ups, can you guys just walk us through what the effect of tax rate is going to be on the business now, maybe starting 2020 as kind of the first clean year and how that's going to evolve over the next couple of years, I know you're going to start about dilution, but just in terms of the actual tax rate?

Martin Bernard Kelly -- Chief Financial Officer & Co-Chief Operating Officer

Yes sure, Alex. It's Martin. So over the medium term through the cycle, we would expect the blended cash tax rate to be in the range of 16% to 18% and that reflects both the today the blocked and unblocked basis, most of the, increase in the tax cost in the dilution is being incurred on the carry and balance sheet side of the house which is a modest uptick on the FRE tax rate.

Alex Blostein -- Goldman Sachs -- Analyst

Thanks.

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

I, thanks and good morning. Just on the the FRE growth and the asset growth, it's been strong over the, over the years, the realized performance fees obviously a bit later this quarter, but the outlook, you got the higher net accrued performance fees the incentive generating a AUM growing. So maybe just some color on the portfolio progress and the outlook you realized I know it's tough to predict, but just given where things are situated?

Leon Black -- Founder, Chairman & Chief Executive Officer

Sure, sure. So as I've said in prior quarters and it still remains true, the fund continues to build value 2019 realizations will exceed our 2018 realizations, and our big flow years will be '20 and '21. So yes, I mean, nothing's really different from what we've previously said, continuing to sort of build value there in the private equity business. Obviously, some of that's going to be market dependent and you know, but for the most part continuing to build value in the funds.

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

I didn't add the average investments about three years old. So, it's starting to mature but still a little early in the funds life.

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

Okay, thanks.

Operator

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

Bill Katz -- Citigroup -- Analyst

Thank you very much and congrats on the conversion. Just maybe on the margins again it's really strong FRE margin this quarter and you have just seems like a ton of momentum on the AUM side in the fee rate side, how should we think it about the trajectory now for the FRE margin as you look out over the next 12 to 24 months?

Leon Black -- Founder, Chairman & Chief Executive Officer

Yeah, I mean I think we continue to think that there'is some operating leverage left in the business obviously made a lot of headway. And I don't think that sustainably, we can kind of continue to take -- we don't continue to take that though that type of increases going to be continuing to happen, but we feel like margin is sustainable on going up a little.

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

Yeah, I just say, we're really pleased with the progress was made over the last number of years and we're now we're balancing investing in the platform with future revenue growth and oftentimes the cost comes before the revenue, so that's, the balance that we worked through. And we're pretty concerned about that.

Bill Katz -- Citigroup -- Analyst

Thank you.

Operator

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

Devin Ryan -- JMP Securities -- Analyst

Hey, great there. Good morning guys and congratulations on the conversion announcement. Question here, just on PE deployment. So it feels like there's a lot in the hopper right now you've invested I think $1.6 billion in Fund IX and it sounds like a pretty healthy pipeline, so I don't want to get I guess too far ahead of ourselves here. But can you maybe just give a little more granularity on kind of deployment expectations there and then kind of the scenarios for maybe even being in the market for Fund IX just based on how quickly you're kind of moving on Fund IX?

Leon Black -- Founder, Chairman & Chief Executive Officer

Sure -- sure. So as Josh alluded to in his comments, we do have a number of deals that are pending to close and should be closing in the coming one to two quarters, from a continued deployment. Our teams are quite busy. As we've said in the past, it's a tricky environment and you know we are remaining very disciplined on the investments we do make. And it's inherently like unpredictable and so I hate to really try to pinpoint exactly how fast deployment is in any quarter or even in the next 12 months. As far as Fund X I think it's premature to be talking about exactly when that'll come as you guys know we're incredibly opportunistic and so when opportunities arise, we will lean aggressively into them and when conditions aren't right for what we're looking for we'll pull back. So I think it's tough to sort of give a a very detailed, you know, quarter-by-quarter flow but I'll end with the deal teams are quite busy. There is a lot of stuff to look at.

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

Yes, so we're probably 15% committed and nine and our pace has been on average plus or minus $5 billion a year. So with -- so you know if you think about that it gives you some context but you know as to how you might think about front end, but the reality is that it's going to be market dependent if you back five star, you know the fact is the market's trading below 15 times and the economy is healthy and so there's good value opportunity right now. The financial markets are open. So we're going to try to continue to do our thing.

Leon Black -- Founder, Chairman & Chief Executive Officer

The only thing I would add is that there has been very little on the distress side over the last five years in the funds. When you look at Fund-7, two-thirds of it wasn't distressed fund-8 it was less than 5%, your guess is as good as ours, but we're in the 11th year of recovery and probably with a reasonable probability somewhere during fund-9s life there's going to be a heavier emphasis on distressed and when that window opens there should be a lot more capital deployment in that area.

And clearly one of the activities of the PE team right now has been to be reviewing literally many hundreds of companies in the industries that we pay a lot of attention to, and where we want to be in the capital structure and at what price and in some industries we're getting closer, but not quite there and others, not but clearly that's a component, but that has not been active for the last five years, but somewhere in the next two or three years may become a lot more active.

Devin Ryan -- JMP Securities -- Analyst

Great, thank you guys.

Operator

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

Glenn Schorr -- Evercore -- Analyst

Hi, thanks very much. Obviously, with all the growth being put from the insurance and credit sides of the business, I have a question on the debt, your view on debt markets, maybe public versus private valuations, competition structuring, things like that where you see value because $900 million of capital deployment in the quarters. Okay, but is there plenty of dry powder and a lot of growth coming there so curious where you see value as it relates to how much we can we expect deployment there?

James Charles Zelter -- Co-President, Chief Investment Officer, Credit

Sure . Glenn, this is Jim, certainly we were active in the fourth quarter when we had the opportunity when the market sold off and there was opportunity in the liquid markets, leveraged loans in particular and structured credit in terms of the most recent quarter. As Martin said in these numbers, we participate in the rally and for the most part, there's probably a little bit better value in the private markets right now than the public markets. We've continued to hone (ph) our business and grow our business very well in Mid-cap Mid-Cap continues to grow. And as you know, that's all senior secured assets with covenants and those companies in that portfolio grew 13% last year.

So we're finding opportunities in mid cap and direct origination in our business. Scott mentioned, we've done three investments in hybrid value to date and certainly, we are also finding opportunities in our bespoke opportunities in structured credit in our Real Assets bid. And so for us right now. We were not macroeconomist but we suspect the environment It's Scott and Leon and Josh have described is going to continue the rest of the year lower rates probably muted inflation. Look forward to opportunities with market dislocations, but we probably prefer a private opportunities in public.

Glenn Schorr -- Evercore -- Analyst

Got it. If I could on slide 10. I like the bottom right of the slide, where you give the Athena and Athora AUM breakdown. Could you give just some examples of which assets fit into which of those buckets. And importantly, which one's drive the higher fees for Apollo?

James Charles Zelter -- Co-President, Chief Investment Officer, Credit

So I'll start, so the yield assets and higher out (ph) for assets include real estate lending committed mis-lending and sort of yielding our assets and then as you work your way up, you get into COO (ph) liabilities an array of other sort of mid-market type lending exposures. So in the range on the fees, there which we've disclosed previously goes there's a large range around that sort of 6.5 bips (ph) that's 70 bips (inaudible) and that just reflects the yield profile of the assets that we're investing on behalf of the thing.

Yeah, just provide to a little bit more color like the core assets are your investment grade public and private book your core plus assets are some of your mortgages your mortgage first mortgage paper your yield assets or your in real estate your senior mezz and the higher alpha maybe some things like a variety of CLO equity in CLO liability so along the risk curve in along and liquidity (inaudible).

Glenn Schorr -- Evercore -- Analyst

Perfect, thank you.

Operator

Our next question comes from the line of Gerald O'Hara of Jefferies.

Gerald O'Hara -- Jefferies -- Analyst

Great, thanks for taking the question. I guess just actually staying on on slide 10 for a moment, perhaps you could touch a little bit on the growth outlook for Athena and Athora business and then to the extent you have any visibility or perhaps even preference how you think these asset allocation buckets might look several years down the road Thank you.

Gary Stein -- Head of Corporate Communications, Client and Product Solutions

Hi, it's Gary just from an industry point of view. Part of the overlay of the fill in. But it's similar to even two years ago, we see a number of opportunities. We continue to be active in the, looking at these opportunities. Interestingly as things advance one is stable and that is the pressures on the insurance industry, are about the same today as they've been over the last few years. Low interest rates and a lot of big companies needing to reposition within their portfolios by geography, or by line of business. So that exists. There are more financial sponsors that are buying simple annuity blocks. Interestingly, there are still very few strategic buyers in the insurance industry. So we don't run into that type of competition and as you'll recall, we really focus on is our comparative advantages in those two things, one is really trying to understand the insurance industry and a lot of verticals within insurance. We are now operating in six different verticals of the insurance industry in Europe and the US, we have about 150 people, working in insurance and financial services. And so that area, we think we have a comparative advantage to deliver solutions . On the second side that's equally important, we can continue to build out the investment capability for insurance company balance sheets and we think we have a comparative advantage there we can add enhanced yield for similar risk and we know the regulatory landscape for both NAIC and Solvency II. And as we build out those capabilities that plus our insurance expertise, we are in just as actually Scott alluded to and Leon in the private equity. On the insurance platform side, we are in a number of active dialogues when the timing will be how will come out we never know. But the flow is as good today as it was two years ago and then at subsequent period we found ways to get things done.

Leon Black -- Founder, Chairman & Chief Executive Officer

I would just add on the asset allocation side. I wouldn't expect with growth to see a dramatic change in the large buckets. We're talking about monetizing and trying to get incremental basis points out of various assets, but the core structure of the Apollo portfolio. The core structure the authority portfolio there is going to be some changes around the edge, but they're not going to be dramatic shifts in the buckets, as you model the business.

Gerald O'Hara -- Jefferies -- Analyst

Great, thank you.

Operator

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

Robert Lee -- KBW -- Analyst

Great, thanks and congrats on pulling the trigger on the conversion. Can you maybe just new updates. We haven't heard much about it in a while, but you know, with all the solid fundraising and credit, and obviously a theme in the store, but kind of what you're seeing in the strategic separate account area. I mean, I know you had bunch of success of that going back, is that still, is that part of the pattern flow maybe any update there would be helpful?

Leon Black -- Founder, Chairman & Chief Executive Officer

Yes, look, I mean obviously the investors now pretty larger investors, one customization and customized reporting, customize particularly in customize risk allocation among various asset classes and geographies and so certainly that is credit is grew at 14% over the last four years and there's definitely. I can't tell you that's a faster growing segment in credit.

Martin Bernard Kelly -- Chief Financial Officer & Co-Chief Operating Officer

Yes. And I would just add, our focus last year, when you think about the margin contribution of a co-mingled fund versus an --, we are focused last year was on hybrid value, which was very successful for us. We're going to continue to add SMEs in the size and scale that make a difference for us, but we have, if you look at our SMEs, as a percentage of AUM or in actual round numbers it's around $25 billion. So we think that's -- we were a leader early. We've continued to keep the dialog we will do so. But we're going to make sure we focus on the commingled fund the sizable scalable commingled fund as well.

And just want to give investors the way to express their view and whatever structure they won or feels right for them.

Gerald O'Hara -- Jefferies -- Analyst

Great, thank you.

Operator

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

Patrick Davitt -- Autonomous Research -- Analyst

Okay. Hey, good morning, thanks for the time. Scott, I want to go back to your discussion on the kind of the realization outlook. Just curious if that view that 2019 will be better than 2018. It's just kind of a view of the volume of realizations or do you think the cash flow from realizations can be higher than 2018 and within that could you frame of the completed and announced pipeline of sales expected to come through over the next couple of quarters?

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

Sure. So again, I'll start with the caution of all market dependent, but to answering the first part of your question around what's coming down, from a monetization standpoint. Yes, look, I think that's ultimately based on our bottoms are build of what's coming to maturity what dividend recaps aware about what expected exits that where companies are now ready to be exited. We have, things that have been in the press, that are on their way to -- should be starting their exit. So I'm not going to name specific names but so it's from a, it really is a bottoms up buildup based on when these companies are, we've created the value. We're going to create in these companies and are now moving to an exit path.

Patrick Davitt -- Autonomous Research -- Analyst

Thank you.

Operator

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

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks, good morning. So, just given that it seems balance sheet is now a $114 billion. I'm just wondering how challenging is it to help as being fine, which I think is $30 billion plus of new year and also within that also help us being migrate its balance sheet into one third which I think you guys labels differentiated assets?

Leon Black -- Founder, Chairman & Chief Executive Officer

So if you take a step back, if you look at the core balance sheet now that were over $100 billion. We have about 35% to 45% allocation to core investment grade public and private, so the workhorse of the vehicle what's going on the IT market. We have a leading position in that spot as well as the private placement market. But to your question, it's success in a variety of areas, it's success, not only in structured credit, commercial real estate that what we really have no -- for all our reorigination and then certainly on the residential side, as well as, a variety of structured vehicles like mid cap in the mirror home. So it's the combination of all those that contribute. Our focus is still it a follow up to create more direct origination vehicles like we've done in aviation in the last 18 months, and there's a variety of that are in the R&D lab to help them out, but our focus to them is obviously a primary focus and we feel very comfortable that the M&A pipeline that Gary mentioned earlier that we are very comfortable our ability to add incremental basis points returns and again, it's been public with all the numbers, we're not talking about hundreds and hundreds of basis points of margin. If you look at the historic outperformance, we've done versus other insurance companies. It's average in that 40 to 50 basis points.

So it's a lot of large numbers and during a day in and day out. And we feel very comfortable our ability to continue to do so.

Craig Siegenthaler -- Credit Suisse -- Analyst

I mean the size, the $115 billion, by the way, the size of the AUM is actually in many cases an advantage and that, I mean I just point out that organically just through distributed -- flash reinsurance institutional Athene is growing relatively healthy and relatively healthy way. And on top of that we are finding that our ability to next to --, you're happy where we have the largest, the largest permanent capital out there in this business and that becomes an advantage relative to helping other strategic players -- problem that other people really can't do?

Leon Black -- Founder, Chairman & Chief Executive Officer

And the macro opportunity is still very compelling. Yes, there are other players in the play -- are trying to get into the playoffs then and that's fine. Some competition is healthy. But the macro picture is we see over a trillion dollars of opportunity on the life side and probably half of that on the P&C side, Gary mentioned, we are now in six different insurance platforms and maybe, there has been a reasonable valuation of underperformance across the industry given the low rates and a lot of companies have used whatever cash they had for stock buybacks, for dividends and there is a dearth of capital now and the need for many of these big companies to sell off non-performing assets. So, hopefully we will get our share of the targets that we're interested in, but we feel pretty sanguine and optimistic about the opportunity, especially given the platform we've built and the team, we've put together.

Operator

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

Chris Harris -- Wells Fargo -- Analyst

Thanks. I just want to follow-up on an earlier question about the tax rate, once the conversion goes into effect, should we be expecting an immediate step up in the 16% to 18% range or will it be kind of a phased in ramp up. And the reason I asked that question as I believe with some of the other all sort of converted, it's been more of a phased in type thing.

Leon Black -- Founder, Chairman & Chief Executive Officer

Yeah, I don'get this year because it will be a split here and, but once we get into 2019, I would expect that because carriers being tax for the most part where it wasn't previously that will be fully reflected, and so that will get us into that range in the near term.

Chris Harris -- Wells Fargo -- Analyst

Okay, thank you.

Operator

Our next question comes from the line of Michael Cyprys of Morgan Stanley . And Mr. Cypress. Your line is open.

Michael Cyprys -- Morgan Stanley -- Analyst

Hello can you hear me now?

Leon Black -- Founder, Chairman & Chief Executive Officer

Yes.

Michael Cyprys -- Morgan Stanley -- Analyst

Okay great. So on fee related earnings, you guys have had some impressive growth over the past couple of years and since your IPO 17% past five years or so. I guess what's the right level of fee related earnings growth that we can expect over the next couple of years. And then also, longer term and then all the FRE margin itself 55%. How do you think about the upper bound on that FRE margin and if you were in a couple of years from now and it's below 50%, what would have happened?

Leon Black -- Founder, Chairman & Chief Executive Officer

Yeah, so first of all, if you think about the AUM growth rate, I think our business you know grows at you know double digit. And then you know it's just that's historically what it's done just organically and then you've got things like Athora or acquisitions what I call the R&D lab and we just come up with you know the insurance platforms themselves and the ramp of Athora has gotten us you know in the last five years, 15% AUM growth, so even if that -- you know so I think in that range, the double-digit going up to 12% 13%, even you know you're going to get some operating leverage into the numbers.

And so you're getting that 17% growth which is in excess of your revenue growth. And so I think, that that's likely to continue plus or minus, in terms of the upper -- I mean I don't see the margins going, do, we have industry leading margins and I think that you know it's hard to see the margins going into the 60-plus-percent range.

So I think, if we think about the mid 50s going into the high 50s, you know that feels like the right answer. And the reality is that you know the way the business works, it's you know you build the teams and then the revenue drops, but we tend to reinvest that we don't reinvest every last -- we don't sort of distribute every last dollar of that operating leverage, we try to reinvest in the platform, we're investing a lot this year and in new teams, new products so we can keep that growth growing, keep that AUM growing.

And last thing I'll say, just so you start with the double digit and then you do some different things and the last thing, I'll say is that we have a fair amount of uninvested capital in credit where the fees turn on as you invest and so that could add, if we find good investment opportunities, that could add 200 basis points or 300 basis points to our fee generating AUM. And so you know we often talk about AUM, but you know the fee generating AUM is really what pays the bills.

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

And I'll just answer the last part of your question, which is what would have happened if margins dropped below 50%? I don't anticipate that being a scenario. I think we have a highly durable management fee stream which anchored by time of capital and with little duration to it and so no matter what the markets do there's just not much volatility to the management fee stream and our costs are highly manageable and we play a lot of time and focus and attention. Looking at that, so, there could be a one-off non-recurring type cost that would temporarily drop it, but on a sustained basis. I don't see that as a scenario, we certainly don't plan for that.

Michael Cyprys -- Morgan Stanley -- Analyst

Great, thanks, that's super.

Operator

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

Bill Katz -- Citigroup -- Analyst

Hi, just a follow-up question, I know, Josh, you mentioned that there is no change in the dividend policy, but looking down the road a little bit of just sort of curious, you have a preset yield right now on a highly visible earnings stream (inaudible) durable business model is there an argument to be made to actually lower the dividend a little bit and think about a different type of capital deployment that might catalyze more of S&P type yield on that residual dividend. Have you thought that through?

Joshua Harris -- Co-Founder, Senior Managing Director & Director

First-off we do have a fat yield. So I'm glad you know that, we certainly know. Look, I mean we're always thinking about how to maximize total shareholder returns. And so we're always exploring various things at this point we've thought , we think a tremendous amount about our dividend policy at this point, we feel like the distribution policy as appropriate. We're always looking at things that may enhance the value and so we are, if we were to be convinced that changing the dividend and we do have investment opportunities, but right now we are convinced that we have a heavy -- your model generates a lot of cash flow and capital-light and we don't. There's no need to retain the capital we're obviously well rated. We don't have a lot of leverage. And so we feel like the right thing to do right now to do right now is to pair it out if there were to be some amazing opportunity or we would feel that the market would value us in a better way if we pair out we would do that, but that's not how we feel right now.

Bill Katz -- Citigroup -- Analyst

Thank you.

Operator

And ladies and gentlemen, we have time for one more question. Our final question will come from the line of Michael Carrier of Bank of America Merrill Lynch.

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

Alright. Thanks, just one follow-up on the C-Corp conversion the dilution is better than expected and I think what you guys expected in prior quarters, just curious what drove that and then is that for common or is it for the overall, for overall?

Leon Black -- Founder, Chairman & Chief Executive Officer

It's for overall, it's, well it's the total cash dilution to a shareholder across all parts of the structure. And the reason it came down from we suggested a year plus ago some comments based on -- I think what's changed incentives that we've incorporated a tax benefit from a 754 election in the numbers and our FRE mix relative to carry continues to increase.

And so I think that over time has reduced the dilution that you expect to see that.

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

Got it. All right. Thanks a lot.

Leon Black -- Founder, Chairman & Chief Executive Officer

All right, thanks.

Operator

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

Gary Stein -- Head of Corporate Communications, Client and Product Solutions

Great. Thanks everyone for joining us this morning. Remind you again to save the date for November 7th for our Investor Day. We'll look forward to speaking with you again soon.

Operator

Thank you, ladies and gentlemen, this does conclude Apollo Global Management's First Quarter 2019 Earnings Conference Call. You may now disconnect and have a wonderful day.

Duration: 54 minutes

Call participants:

Gary Stein -- Head of Corporate Communications, Client and Product Solutions

Leon Black -- Founder, Chairman & Chief Executive Officer

Joshua Harris -- Co-Founder, Senior Managing Director & Director

Martin Bernard Kelly -- Chief Financial Officer & Co-Chief Operating Officer

Alex Blostein -- Goldman Sachs -- Analyst

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

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

Bill Katz -- Citigroup -- Analyst

Devin Ryan -- JMP Securities -- Analyst

Glenn Schorr -- Evercore -- Analyst

James Charles Zelter -- Co-President, Chief Investment Officer, Credit

Gerald O'Hara -- Jefferies -- Analyst

Robert Lee -- KBW -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

Craig Siegenthaler -- Credit Suisse -- Analyst

Chris Harris -- Wells Fargo -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

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