瑞信-美股-投资策略-保险—资产管理模式的详细分析-2019.5.21-31页 (2).pdf

Credit Suisse Equity Research Americas/United States A Detailed Analysis of the Insurer-Asset Manager Model+Our“C-Corp&FRE Twist”Upgrading Apollo to Outperform;Downgrading Carlyle&KKR to Neutral May 21,2019 Brokers&Asset Managers Craig Siegenthaler,CFA Managing Director+1 212 325 3104 Craig.Siegenthalercredit- Steven Castano Analyst+1 212 325 2653 Steven.Castanocredit- Life Insurance Andrew Kligerman Managing Director+1 212 325 5069 Andrew.Kligermancredit- Wilma Burdis Vice President+1 212 325 1594 Wilma.Burdiscredit- DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.Our“C-Corp&FRE Twist”+Apollo Bull Case Our“C-Corp&FRE Twist”upgrading APO to Outperform+downgrading KKR and CG to Neutral:We are re-focusing on the alts that will(1)benefit from recent/future C-Corp conversions(APO converts in 3Q19),(2)generate stronger than expected FRE(fee-related earnings)growth and(3)experience less negative earnings revisions in the next economic recession.While we are still bullish on the alts and continue to rate ARES and BX at Outperform,we also believe APO is an attractive third addition,and we think all three will Outperform under our next 12 months framework.Understanding the bull case:Apollo could continue to be one of the fastest growing firms in the alternatives vertical over the next five years largely due to the expansion of its insurance business and related permanent capital vehicles.These business contribute to almost 50%of APOs FRE.The fundamental APO bull case is:1)Future FRE growth related to Athene/Athora-arguably 2nd fastest 3Y trajectory(ARES#1)but it is partially dependent on insurance acquisition pipeline(which can be impacted by ATHs depressed valuation).2)APOs Fund VIII realization trajectory(somewhat lower/delayed now after weak 2018)APOs 2013 EPS was$4+on a smaller AuM base and we are forecasting 5%+upside to 2020 consensus EPS(and we could be conservative).3)Attractive valuation(on standalone FRE or Sum-of-the-parts)looks like market is embedding near bear market scenario for APO see slide 26.Credit Suisse Asset Manager and Broker Research 2 Our“C-Corp&FRE Twist”APO(&BX,ARES)Are Catalyst Rich Credit Suisse Asset Manager and Broker Research 3 APOs C-Corp case was the second strongest(to ARES who converted first).APOs dilution to EPS from tax leakage on 2018 distributable EPS would have been only 5%.We estimate it will be 5%to 10%over the cycle(APO guided to 7-9%).Insurance What Some Love(or Dislike)About APO Insurance companies and captive businesses(like Athene)represent one of the largest growth opportunities for the industry:This also includes the insurance businesses of Blackstone(FGL Holdings),Ares(AIG JV)and Carlyle Group(Fortitude Re).There is an opportunity for insurance companies to increase their allocations to private debt and structured credit,and the Alts are perfectly positioned to provide these solutions.The main risk to Apollo:APOs permanent capital vehicles contribute almost half of the firms FRE,and we think this has added concentration risk.Accordingly,we monitor the investment performance of Athene,Athora and its other permanent capital vehicles very closely.APO summarizes this risk in its 2018 10-K,by stating that its management contracts can be revised or terminated(and this includes Athene).In this slide deck,we try and help investors(1)understand what value Apollo is providing Athene,(2)outline the potential risks to Apollo(including investment performance and OTTIs at Athene),(3)detail the attractive growth potential and(4)provide conclusions on how APO should be valued given its business concentration.Our recommendations to help APOs depressed valuation:We think APO and BX should change their dividend policy to provide better visibility to long-only investors that favor a high fixed dividend(that could match its stable FRE).This policy provides more capital flexibility including opportunistic buybacks,acquisitions,investments and special dividends.We also think APO and BX should move 5%of their firms voting rights into the float which would qualify them for both the FTSE and Russell Indexes.The Russell 1000 has significant long-only shadow AuM as its the major benchmark of our large cap long-only clients.Credit Suisse Asset Manager and Broker Research 4 Our 2-Prong Approach to Alt Valuation(Cash Earnings+SOTPs)Alts Valuation Method IAlts Valuation Method IIUpside/Downside Norm.Cash EarningsSum of the PartsSOTP to TPTicker Company NameRatingCurrent PriceTarget PriceUpside to TP Total Return(incl div)5Yr AverageCash Earnings MultipleTPConservativeAggresssiveConservativeAggressive2019 DividendAPOApollo Global MgmtO$33$4229%36%$3.0214.0 x$42$29$44-32%5%2.21BXBlackstone GroupO$41$5125%30%$2.9917.0 x$51$34$51-34%1%1.91ARESAres Management LPO$26$3016%21%$1.7717.0 x$30$21$34-31%13%1.28KKRKKR&Co LPN$25$2918%20%$1.9615.0 x$29$15$32-48%9%0.50CGCarlyle Group LPN$21$225%11%$2.1710.0 x$22$12$25-44%17%1.33OAKOaktree CapitalN$49$491%3%$3.9614.0 x$49$43$59-12%20%1.0516%20%15.0 x-34%12%The Bull Case=FRE Ramp Not Fully Factored into Consensus FRE Scenario Analysis for Athene and Athora Credit Suisse Asset Manager and Broker Research,ATH Investor Day As of 1Q19 Athene has$3B of debt capacity and excess capital,ACRA is targeting in$4B in commitments Mgmt.discussed on the 4Q18 earnings call that it could grow ATHs assets by 40-50B of AuM and Athora is currently at 14B of AuM 5 Potential FRE Ramp from Excess Capital Deployment at Athene/AthoraAthene Excess CapitalACRA Excess CapitalAthora Excess CapitalTotalDeal Capacity(E+D)-$B3.04.01.88.8Asset Leverage Ratio(per$1B)12.0 x12.0 x20.0 x13.6xLiabilities Acquired Athene/Athora($B)36.048.036.0120APO Fee Rate0.36%0.36%0.25%0.33%Mgmt Fees to APO13017390392FRE Tax Rate20%20%20%20%APO FRE Contribution(80%Margin)$0.20$0.26$0.14$0.60APO Valuation on FRE w/Excess Capital DeploymentAthene Excess CapitalACRA Excess CapitalAthora Excess CapitalTotal2018 APO After-Tax FRE$1.49$1.49$1.49$1.49Incremental FRE from Capital Deployment$0.20$0.26$0.14$0.60Adj.APO FRE incl.Capital Deployment$1.69$1.75$1.63$2.09FRE Multiple-20.0 xImplied FRE APO Stock Price-$42.00$1.49$2.09$0.20$0.26$0.14$0.00$0.50$1.00$1.50$2.00$2.502018 APO After-Tax FRE CSEFRE from AtheneExcess CapitalFRE from ACRAExcess CapitalFRE from AthoraExcess CapitalAthene FRE afterExcess CapitalDeploymentBackground on the Insurer-Asset Manager Model(Apollo)Athene was formed in 2009 to capitalize on a dislocation in the life insurance sector.It is a retirement services insurer that focuses on fixed and fixed indexed annuities,reinsurance services to third-party insurers and institutional products(including PRTs and funding agreements).APOs objective is to provide superior investment returns net of its fees for the insurers general account assets through APOs investment platform and related credit portfolio companies.Apollo through its Athene Asset Management subsidiary provides asset management and advisory services to Athene including asset allocation,direct asset management,asset-liability management and M&A.Apollo manages$114B of AuM for Athene,and we expect the revised management fee agreement to be approved at the June board meeting.Athora is Apollos European platform that serves the European life insurance market and also acquires/reinsures blocks of insurance business.Apollo manages$14B of AuM for Athora,of which$11B was non-subadvised.Footnote:APO Investor Presentation APOs Management Fees from Perm Capital 6 Credit Suisse Asset Manager and Broker Research 0%20%40%60%80%100%02004006008001,0001,2001,4001,6001,80020122014201620182020EOther Total Mgmt.Fees($M)Mgmt.Fees from PCVs($M)%PCVs of Mgmt.Fees from PCVsBackground on the Insurer-Asset Manager Model(Apollo)Hedge funds including Green Light,ThirdPoint and SAC actually pioneered the insurer-asset manager model.Their efforts were largely focused on shorter duration liability streams(P&C/reinsurance)which was a good fit with the liquidity profile of hedge funds.Warren Buffetts Berkshire Hathaway,which owns GEICO,Gen Re,NRG and Berkshire Hathaway Assurance,also deserves recognition as the original pioneer of leveraging insurer balance sheets although the Berkshire Hathaway model is a hybrid between KKR(large balance sheet)and Apollo(insurance).APOs insurance business provides the firm a high growth and FRE-rich earnings stream which has benefited its stock price.APO owns 10%of ATH through a stake in its balance sheet,and has a performance fee receivable through a related permanent capital vehicle(AAA).However,the true economic value of Athene is through the future fees that it will generate for Apollo,and not Apollos small equity stake in the business.Credit Suisse Asset Manager and Broker Research APO Historical Permanent Capital AuM 7 Source:APO Earnings Presentations -20 40 60 80 100 120 140 160 1802012201320142015201620172018Athene AuMAthora AuMOther Perm.Cap AuM02040608010012020142015201620172018Athene Invested Assets051015202530201320142015201620172018FG Invested AssetsBackground on the Insurer-Asset Manager Model(Blackstone)BX created a business within the firm called BIS(Blackstone Insurance Solutions)which is focused on both(1)acquiring insurance liabilities and managing a captive business(similar to the APO-ATH model),but also(2)providing third-party solutions to insurers.Unlike APO,which is mostly focused on its captive insurance business(Athene/Athora),we believe BXs effort in five years will contain a higher mix of third-party assets.BX can leverage the firms diverse/deep product offering to obtain a covariance benefit from the regulators and rating agencies and create customizable solutions for insurance companies.BX does not hold an equity stake in FG,but through its funds(Tac Opps equity,GSO preferreds)and a related SPAC acquired FG in 2017 after FGs merger agreement with Anbang of China was terminated.Credit Suisse Asset Manager and Broker Research 8 Athene Invested Assets FG Life Invested Assets Source:ATH&FG Earnings Presentations Background on the Insurer-Asset Manager Model(ARES,CG)The Carlyle Group CG has a 19.9%stake in Fortitude Re which is a Bermuda based reinsurer with$42B of assets,and unlike APO and BX,CG is not the advisor for the balance sheet.In addition to Fortitude Re,8%of CGs capital commitments are from insurance company limited partners.We estimate there will be a 50-50 split in Fortitudes investments between private equity(including real assets)and credit.For third-party insurers,we estimate CGs large CLO business is their biggest seller,but they also are distributing direct lending and opportunistic credit funds.CG just acquired an aviation finance business,which is its only true asset-backed platform(CG still lacks real estate debt and infra debt).Ares Management ARES started an insurance solutions team in 2014,and insurance companies are a core consumer of ARESs alternative debt products.Additionally,ARES has two JVs with its BDC(including one with AIG)which allows the insurer to generate attractive returns in private debt.In the future,there may be an opportunity for Ares to start a captive insurance operation(like Apollo or Blackstone)that targets the longer duration life insurance segments including fixed indexed annuities.Currently,insurance companies contribute to 11%of ARESs total AuM,and it represents one of its top client segments for future growth opportunities.Credit Suisse Asset Manager and Broker Research 9 Why Do the APO&BX Businesses Focus on Fixed Index Annuities?These businesses were cheaper and easier to acquire.The duration of the underlying liabilities are longer which provides more opportunities for the alts to add-value on the asset side of the balance sheet through less liquid investments.62%of ATHs annuities have surrender charges of two years or longer(with some more than ten years).Fixed index annuities(FIA)initially started out with a mixed reputation as the products had the combination of complexity,high fees and long-term lock-ups.There also were issues with industry selling practices with some brokers selling these retirement products to senior citizens which were not suitable given the long-term lock-up.However,we believe the DOL Rule,even though it was vacated,caused the insurance and brokerage industry to evolve by reducing product pricing,improving transparency and upgrading selling standards.Many of the larger life insurers focus their underwriting on other products like fixed annuities,group health and more traditional life insurance products.While these blocks are capital intensive in the U.S.,APO and BX can partially mitigate this via offshore entities.Recently FIA sales have begun to pick up after the DOL rule was vacated in 2Q18 and LIMRA forecasts$80-$85B of FIA sales in 2019(vs.$70B in 2018&$55B in 2017).Increasingly insurers are beginning to diversify their product mix and are finding FIA products easier to hedge relative to other annuity products.Credit Suisse Asset Manager and Broker Research 10 Investment Portfolio Composition&Migration(Overview)Athene and FG are repositioning their portfolios by reducing their allocation to B-BBB rated corporate bonds and migrating into differentiated assets which include private debt and structured credit.These products contain loans that were originated by Apollo,Blackstone or one of their portfolio companies.ATH Investment Portfolio FG Investment Portfolio Average Life Co.Investment Portfolio Credit Suisse Asset Manager and Broker Research;FG Other Includes CMBS,RMBS,Derivatives,Policy Loans,Common Stock and Cash.11 Source:ATH&FG Earnings Presentations&ATH 2018 Investor Day 62%4%3%3%13%3%3%8%Corporate&GovtRMBSABS/CLOCMBSMortgage LoansAlternativesCash&EquivalentsOther52%9%15%3%13%4%2%2%Corporate&GovtRMBSABS/CLOCMBSMortgage LoansAlternativesCash&EquivalentsOther41%33%11%5%4%4%2%CorporatesStructuredSecuritiesOtherMunicipalsPreferred StocksHybridsAlternative AssetsInvestment Portfolio Composition&Migration(Alts)Athene and FG have been reducing their hedge fund investments in their alternatives bucket,while Athene has used this bucket to purchase direct equity stakes in Apollos credit portfolio companies,and FG has used this bucket to generate high returns in illiquid alt segments like private equity.From ATHs 1Q19 Supp,we estimate ATH owns stakes in AmerHome($436M),Catalina($232M),Athora($124M),Venerable($87M)and MidCap($550M).Credit Suisse Asset Manager and Broker Research;Differentiated Investments for ATH includes equity stake in Amerihome,Midcap,Catalina,Venerable 12 ATH Alts Allocation FG Alts Alloc