Securities and Exchange Commission
Division of Corporation Finance
Washington, D.C. 20549
RE: | Apollo Global Management, LLC Form 10-K for the Fiscal Year Ended December 31, 2014 Filed February 27, 2015 File No. 001-35107 |
1. | Please provide a definition of what a “relying advisor” is and how it differs from a directly registered investment advisor. |
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2. | We note your tabular presentation summarizing the changes in total AUM for each of your segments on page 76. Please clarify which line item includes the change from foreign exchange rate fluctuations. In future filings, revise your MD&A where you provide summaries of changes in AUM to disaggregate your market and foreign exchange appreciation (depreciation) amounts. |
1 The ABA No-Action Letter can be accessed here: http://www.sec.gov/divisions/investment/noaction/2012/aba011812.htm.
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3. | In future filings, please expand your discussion of the qualitative and quantitative factors impacting your carried interest income from affiliates during the year by identifying the underlying drivers and quantifying their related impact where applicable. For example, discuss some of the factors (e.g. oil prices, energy exposure, foreign exposure, other, etc.) leading to a decline in carried interest income from Fund VI and Fund VII and quantify the impact of those factors, where applicable. Refer to Item 303(a)(3) of Regulation S-K and provide us with a draft of your planned future disclosure. |
4. | We note your tabular presentation of investments at fair value on page 169 showing a fair value of $2.1 billion and $1.9 billion for your investment in AAA as of December 31, 2014 and 2013, respectively. Please provide us with your significance tests for this investment in determining whether separate financial statements are required in accordance with Rule 3-09 of Regulation S-X. |
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5. | With respect to the valuation technique, quantitative inputs and assumptions used to measure the fair value of the investment in Athene Holding disclosed in the table on page 182, please address the following: |
— | We note your discussion on page 125 indicates that you gave consideration to the control deficiencies and potential adjustments related to Athene in your determination of fair value of the investment. Explain how those control deficiencies and potential adjustments impacted your quantitative inputs and assumptions (e.g. WACC, discount rate, projected future cash flows, other, etc.) for measuring fair value. |
— | In your determination of fair value, explain to us how you have considered peer company multiples in your quantitative inputs and assumptions, and in doing so, if you included peer companies with material weaknesses in their internal controls that experienced delays in the timely delivery of GAAP financial statements as benchmarks. |
— | In light of the potential adjustments and material weaknesses in controls of Athene, explain to us the procedures you performed to validate the underlying projections and information used in determining fair value. As part of your response, discuss the results of back-testing procedures performed on projections used for previous periods and whether the adjustments would have any impact on the fair value determined in prior periods. |
— | Control over Actuarial Balances: Athene determined that it did not have sufficient control procedures in place to identify unusual trends or balances within the actuarial reserves principally acquired in Athene’s 2013 acquisition of Aviva USA or to validate results from models created in the past. These control deficiencies resulted in adjustments to interest sensitive contract liabilities, including reserves, value of business acquired, or VOBA, and deferred acquisition costs, or DAC, reported within that balance. To remedy this material weakness, Athene completed several initiatives over the past year including implementation of roll forward procedures for its actuarial reserves, enhanced analytical procedures and quality control processes, procedures and |
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— | Control over Tax Balances: Athene identified a lack of control procedures over the preparation and accuracy of tax balances, which primarily stemmed from the scaled organizational needs following Athene’s acquisition of Aviva USA. Delays in the timely preparation of Athene’s tax basis balance sheet as of the opening balance sheet date for the acquisition of Aviva USA, delays in the creation of tax accounting entries and supporting schedules and documentation, limitations in the systems that support its tax accounting records and deficiencies in the amount and training of its staff caused Athene to identify this as a material weakness for financial reporting. To remedy this material weakness, Athene added competent and experienced personnel to its tax staff. For example, Athene created Global Head of Tax and Tax Controller positions and filled them with highly experienced individuals. Over the past year, Athene enhanced its tax processes and controls and entered into a co-sourcing relationship with a Big 4 firm to provide further depth to its capacity and expertise. |
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6. | Please provide more information on how you determine who will receive a discretionary bonus and how much is paid. The discussion should describe the factors the Managing Partners considered in exercising their discretion. |
7. | Please describe the key terms of the non-competition and non-solicitation portions of the agreements with Messrs. Black and Kelly. |
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8. | It appears that the “#” symbol under the Stock Awards entry for your director compensation chart should be a “$.” If true, please ensure that it is correct in future filings. |
9. | We note the disclosures of the distributions to your officers and directors and note that the investments are not subject to management fees and in certain circumstances are not subject to carried interest. Please explain the basis for your belief that these benefits are not required to be disclosed as perquisites and personal benefit in the summary compensation table. |
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— | the Company is responsible for the adequacy and accuracy of the disclosure in the filing; |
— | Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and |
— | the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
Respectfully submitted, | ||
/s/ Martin Kelly | ||
Martin Kelly | ||
Chief Financial Officer |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | (1) | 2015 | 2014 | (1) | |||||||||||
(in millions) | ||||||||||||||||
Change in Total AUM: | ||||||||||||||||
Beginning of Period | $ | 162,948 | $ | 159,326 | $ | 159,797 | $ | 161,177 | ||||||||
Inflows | 3,206 | 8,740 | 8,106 | 10,997 | ||||||||||||
Outflows(3) | (1,707 | ) | (430 | ) | (2,225 | ) | (1,983 | ) | ||||||||
Net Flows | 1,499 | 8,310 | 5,881 | 9,014 | ||||||||||||
Realizations | (3,392 | ) | (1,721 | ) | (4,771 | ) | (6,091 | ) | ||||||||
Market Activity (4) | 1,443 | 1,581 | 1,591 | 3,396 | ||||||||||||
End of Period | $ | 162,498 | $ | 167,496 | $ | 162,498 | $ | 167,496 | ||||||||
Change in Private Equity AUM (2): | ||||||||||||||||
Beginning of Period | $ | 40,533 | $ | 48,336 | $ | 41,299 | $ | 50,158 | ||||||||
Inflows | 358 | 3,045 | 411 | 3,857 | ||||||||||||
Outflows | (150 | ) | (11 | ) | (620 | ) | (11 | ) | ||||||||
Net Flows | 208 | 3,034 | (209 | ) | 3,846 | |||||||||||
Realizations | (2,014 | ) | (734 | ) | (2,625 | ) | (3,757 | ) | ||||||||
Market Activity (5) | 537 | 1,200 | 799 | 1,589 | ||||||||||||
End of Period | $ | 39,264 | $ | 51,836 | $ | 39,264 | $ | 51,836 | ||||||||
Change in Credit AUM (2): | ||||||||||||||||
Beginning of Period | $ | 112,919 | $ | 101,941 | $ | 108,960 | $ | 101,580 | ||||||||
Inflows | 1,352 | 5,136 | 5,738 | 6,128 | ||||||||||||
Outflows | (1,557 | ) | (285 | ) | (1,584 | ) | (1,315 | ) | ||||||||
Net Flows | (205 | ) | 4,851 | 4,154 | 4,813 | |||||||||||
Realizations | (791 | ) | (516 | ) | (1,133 | ) | (1,458 | ) | ||||||||
Market Activity (6) | 757 | 178 | 699 | 1,519 | ||||||||||||
End of Period | $ | 112,680 | $ | 106,454 | $ | 112,680 | $ | 106,454 | ||||||||
Change in Real Estate AUM (2): | ||||||||||||||||
Beginning of Period | $ | 9,496 | $ | 9,049 | $ | 9,538 | $ | 9,439 | ||||||||
Inflows | 1,496 | 559 | 1,957 | 1,012 | ||||||||||||
Outflows | — | (134 | ) | (21 | ) | (657 | ) | |||||||||
Net Flows | 1,496 | 425 | 1,936 | 355 | ||||||||||||
Realizations | (587 | ) | (471 | ) | (1,013 | ) | (876 | ) | ||||||||
Market Activity (7) | 149 | 203 | 93 | 288 | ||||||||||||
End of Period | $ | 10,554 | $ | 9,206 | $ | 10,554 | $ | 9,206 |
(1) | Reclassified to conform to current period’s presentation. |
(2) | At the individual segment level, inflows include new subscriptions, commitments, capital raised, other increases in available capital, purchases and acquisitions. Outflows represent redemptions and other decreases in available capital. Realizations represent fund distributions of realized proceeds. Market activity represents gains (losses), the impact of foreign exchange rate fluctuations and other income. |
(3) | Included in outflows for Total AUM are redemptions of $390.0 million and $147.1 million during the three months ended June 30, 2015 and 2014, respectively, and $437.4 million and $319.9 million during the six months ended June 30, 2015 and 2014, respectively. |
(4) | Included in Market Activity for Total AUM are foreign exchange translation gains (losses) of $152.9 million and $(23.9) million during the three months ended June 30, 2015 and 2014, respectively, and $(352.8) million and $(16.0) million during the six months ended June 30, 2015 and 2014, respectively. |
(5) | Included in Market Activity for Private Equity AUM are foreign exchange translation gains (losses) of $2.9 million and $0 million during the three months ended June 30, 2015 and 2014, respectively, and $(5.9) million and $0 million during the six months ended June 30, 2015 and 2014, respectively. |
(6) | Included in Market Activity for Credit AUM are foreign exchange translation gains (losses) of $150.0 million and $(23.9) million during the three months ended June 30, 2015 and 2014, respectively, and $(346.9) million and $(15.9) million during the six months ended June 30, 2015 and 2014, respectively. |
(7) | For Real Estate AUM, there were no foreign exchange translation impacts included in Market Activity during the three and six months ended June 30, 2015 and 2014. |
The decrease in carried interest income earned was primarily attributable to lower traditional private equity fund appreciation and a decline in carry generating AUM. The decline in carried interest income was also attributable to lower gross returns for credit drawdown funds. Traditional private equity fund appreciation was 2.7% in the second quarter of 2015 compared to 5.5% during the second quarter of 2014. The decline in carry generating AUM was primarily attributable to the sales of certain of the portfolio companies held by Fund VII, including Athlon Energy, Inc. and Taminco Corp. The lower gross returns for credit drawdown funds of 1.7% in the second quarter of 2015 compared to 4.2% during the second quarter of 2014 was due to valuation declines primarily attributable to a weakened business economic outlook for one of EPF II’s underlying investments. The increased carried interest income in Fund VI and AAA Co-Invest VI was due to the nonrecurrence of losses incurred in the prior period on previously held investments in Rexnord Corp. and Sprouts Farmers Market, Inc.