Apollo: alternative credit group must dispel fears of an ‘annuities run’

Is there such a thing as an “annuity run”? The question has quietly dogged private capital firm, Apollo Global Management amid depositor runs on US regional banks in recent months. This matters because Apollo’s $438bn credit business is poised to take advantage of shifts in corporate lending triggered by banking turmoil.

Apollo’s core liability base, its $250bn Athene annuity business, is not well understood by all Wall Street investors. Shares in Apollo are merely flat this year. One rival with its own formidable credit business, Ares, has seen its stock jump a fifth already in 2023.

The mismatch left Apollo attempting to reassure analysts on Tuesday’s first-quarter earnings call. Its message was that it is hard for annuity policyholders to take back their funds and that they are unlikely to wish to do so en masse.

Apollo showed trend data suggesting that withdrawals and surrenders in the first three months were largely in line with historical norms. Inflows of retail funds remained healthy.

Consumers were attracted by the chance to reap greater returns now that market interest rates are higher. Apollo’s life insurance business gives it a first-mover advantage over rivals trying to catch up via pricey acquisitions of insurance blocks.

Investing those annuity premiums was easier for Apollo thanks to wider credit spreads in its lending businesses. The recently-acquired securitised products group of Credit Suisse was busy providing cash to the likes of PacWest, the besieged California-based bank.

Apollo’s private equity business said it found bargains, taking private chemicals company, Univar for $8bn and Arconic, the metal products company for $5bn.

Asset managers will be the winners if a chunk of credit origination shifts away from wobbly deposit-taking institutions permanently. Apollo has always maintained that its constraint was never assets to manage but good allocation opportunities.

That dynamic has shifted. Bears are therefore now scrutinising Apollo for signs of over-reach.