EFTA00593632.pdf

Morgan Stanley Apollo Global Management LLC I April 1. 2015 MORGAN STANLEY RESEARCH April 1 2015 Apollo Global Management LLC Winter Is Coming: Sell APO Into 1Q Earnings Industry View In-Line Stock Rating Price Target Underweight $23.00 Lowering 1Q divi estimate by 38% to 30c; we're now 38% below consensus. Risk is that dividends may skew towards our bear case in 201546 with APO largely through its harvesting mode. Near-term we see downside risk to APO shares with our 30c dividend estimate in 1Q that is 38% below consensus and 64% lower than 1Q14's 84c div. Our 2015 dividend of 1.96c is 6% below consensus and we see downside risk of —36c if the cash performance fees held in Fund VI escrow are not released this year (we expect this is released in 4Q15, but if timing is pushed out then our 2015 divi declines to 1.60c which is 23% below consensus). While we see long-term value in APO, given the firm's strong track record of above average market returns, we think the stock will likely underperform peers over the next 12 months due to a declining cash earnings and dividend trajectory. Also see our 1Q Alts preview here: US Asset Managers: Summer of Realizations: Buy BX and CG into 1Q Earnings (01 Apr 2015). 1Q divi expected to be the lowest since 2Q12. If this trend persists, there could be a disconnect between near-term share-price performance and longer-term fundamentals. APO's high dividend yield (9.6% currently on cons 2015 divi) is a core part of the APO investment appeal in the short-term, until the outlook for cash earnings improves after another deployment cycle or incremental scaling of the credit business. We see downside risk to consensus dividend estimates and we're 6% below in 2015 (with downside bias to our estimate) and 13% below in 2016. No PE Monetizations Announced in 1Q: APO did not announce any PE exits in 1Q in which they can take cash carry. Yes APO exited Sprouts but that's held in the Fund VI escrow which is not released until the portfolio value exceeds 115% of cost (last at 104% in 4Q and likely declines further in 1Q with the Sprouts exit). We're estimating 3c in cash carry for PE in 1Q as we bake in potential dividend recaps in portfolio companies. APO announced sales of Brit Insurance and Great Wolf in 1Q which we estimate could generate 21c of cash carry but we do not expect these to close until 2Q or 3Q. CNS Monitoring fee expired in 4Q, drops to zero in 1Q: this drives a 29% decline in credit mgmt fee revenues in 1Q15, worth 8c to EPS. We're relatively less concerned about this as it's been expected for some time now and does not impact cash earnings or the dividend... but presents headline risk to reported EPS. MORGAN STANLEY & CO. LLC Michael J. Cyprys, CFA, CPA Nicholas Stelzner, CFA Apollo Global Management LLC ( APO.N. APO US) US Asset Managers / United States of America Stock Rating Industry View Price target Shr price, close (Mar 31, 2015) 52-Week Range Underweight In-Line $23.00 521.60 $31.59.20.02 Fiscal Year Ending 12/14 12/15e 12/16e 12/17e ModelWare EPS (5) L42 1.88 2.15 2.27 Prior ModelWare EN - 1.86 2.07 2.22 (5) P/E 16.6 115 10.1 9.5 Consensus EN (5)$ L64 2.01 2.25 Div yld (%) 12.3 9.1 8 7 8.1 Unless oIhonv noted, all metes aro haled on Morgan Stant., ModoPNam hamesoik f - Conionsus data is peovded by Thomson 00000 it Estmatos 0 - Morgan Sochi Research °Imam QUARTERLY MOD(LWARE EPS 2015e 2015e 2016e 2016e Quarter 2014 Prior Current Prior Current Q1 0.55 0.38 0.36 0.58 0.60 Q2 0.S2 0.54 0.56 0.55 0.57 Q3 0.12 0.42 0.43 0.43 0.45 Q4 0.23 0.51 0.53 0.51 0.53 0 - Morgan Stan by Research mtmatts Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. Founder and significant shareholder lock-ups expired March 29, could EFTA00593632 Morgan Stanley Apollo Global Management Lit I April 1. 2015 MORGAN STANLEY RESEARCH potentially see insider share sales post black-out period in May: this is worth 7.6% of sharecount which could pressure the shares near-term. While it's possible none could sell, history suggests partial selling. Where we could be wrong: higher than expected divi could be driven by 1) dividend recap that may not be reported in the press/loan data services, for which we pencil in 3c. 2) greater monetization of APO's GP stake in funds beyond the beyond the 4c that we model in 1Q for realized investment income, 3) dividend payout greater than 90% of cash earnings using on- balance sheet cash or funded through debt issuance (which we think is highly unlikely), 4) greater than expected management fee-related earnings which we estimate at 19c pre-tax, 15c after-tax, 5) greater net realized cash performance fees from the credit business which we model at S50m or 12c pre-tax. Changes to our Estimates: Lowering 1Q divi by 38% to 30c and lowering 1Q EPS estimate by 7% to 36c. Our 2015-16 dividend estimates decline by 15%/6% to $1.96/$1.88 (that's 6%/13% below cons). 2 EFTA00593633 Morgan Stanley Apollo Global Management LLC I April 1. 2015 MORGAN STANLEY RESEARCH Apollo Global Management (APO, $21.60, Underweight PT $23) Less attractive risk-reward as largely through cash harvesting vs peers; long-term potential in unlocking value from Athene but still early days S 40 35 so 20 15 10 5 0 14.4•13 500-13 • geteCams PUY*/ MIAMI at —.AL - 84Q14 132 001.4590 160 $23001•6%) • 4444.4.0 01600(41 MM-16 566-16 Met-16 ..loonratta:a Percnntet• • DSO Omit Pro Source: Thomson Reuters. Morgan Stanley Research S23 Based on DCF and sum-of-the-pails; back into implied multiple Bull S32 11.3x 2016e Bull Case EPS Base S23 10.7x 2016e Base Case EPS Bear 11.1x 2016e Bear Case EPS Returns more in-line with historical. Fundraising +50% and deployment +25% above base case; (aster Athene asset growth; carry taxed as ordinary income. Below historical returns with rising allocations to alternatives: 5% fee-paying AUM CAGR declining pace of harvesting investments; ramp to full corp. tax rate in 2019-20. Challenging exit and investing environment negative near- term marks on accrued performance fees, delayed exits; returns well below historical average, slower capital deployment and weaker fundraising environment; full corp. tax rate in 2018. Exhibit 1: Bull to Bear Drivers Impact (S/share) Bull 32 00 4 19 ; Target 2100 Price 22 01 (0 Mt) 116 075 i as 0 23 Bear 15.00 a (2.16) (0.43) (LOP r undraising Investment Investment end returns nOld wade allocations 0,00,_ =NEIL (1.60) LP merest Athena Tan 0. 90Yoll Why Underweight? • Less upside relative to our Overweight stocks, driven by Apollo's early cycle skew. We see lower cash earnings over the next several years as APO harvested its investments earlier than peers (80% thru harvesting vs peers at 45-65% thru) which leaves less upside at this point in APO's cycle. • Athene catalyst longer tailed with IPO potentially delayed to 2016 but we would look to get more positive as cash monetization approaches. • Expect lower fundraising at 19% of AUM in 2015-16 vs. peer average of 30% this drives fee- paying AUM CAGR of 5% in 2014-17 (below peer avg of 11%) • Founder and significant shareholder lock-ups expire March 29th (worth 7.6% of share count) could weigh on the stock near-term Key Value Drivers • Athene: IPO as early as 4Q15 but most likely in 2016, resolution of internal control weaknesses, strategic actions should accelerate already strong asset growth; and shifting earnings profile toward fee-related earnings • Strategic actions: induding acquisitions to further scale the credit and real estate businesses Potential Catalysts • Stronger fundraising • Continued pace of realizations • Strategic actions • Potential share buybacks Risks to Our Price Target • Upside: Better FPAuM growth, capital deployment accelerates, better returns • Downside: declining valuations reduce cash earnings (fewer exits or lower multiples); slower deployment 3 EFTA00593634 Morgan Stanley Apollo Global Management LLC I April 1. 2015 MORGAN STANLEY RESEARCH Headwinds for APO Declining performance fee (carry) receivable balance: this balance sheet receivable represents the amount of performance fees that could be realized in cash if the fund investments were liquidated. During 2014 the balance declined from $3.49 in 2013 to $1.31/share with about 70% of the beginning of period balance realized in cash in 2014 worth $2.33 to cash earnings. A similar 70% realization rate during 2015 would imply cash performance fees of $0.90 in 2015. This suggests downside risk to our $1.39 realized cash performance fee estimate (our est implies a 106% realization rate). Deployment in Fund VIII set to pick-up in 2015 (-7% invested and almost 20% committed) but realizations are still a few years away. Exhibit 2: EOP Gross Performance Fee (Carry) Receivable Balance (SMM) 2,500 2,000 1,867 1,878 AA 2,367 rJ 484 I 289 454 1,500 959 1,000 869 1,868 —20-- 1,578 196 1,413 267 500 673 672 2010 2011 2012 2013 2014 ■ Private Equity Credit ■ Real Estate Source. Company Data. Morgan Stanley Research 4 EFTA00593635 Morgan Stanley Apollo Global Management LLC I April 1, 2015 MORGAN STANLEY RESEARCH Exhibit 3: EOP Net Performance Fee Receivable Balance Per Share vs. Realized Carry Flow Through Rate 160% 140% 120% 100% 80% 60% 40% 20% 0% $1.3)' 27% $2.64 2015E 2011 2012 2013 2014 as Realized Carry Flow Through Rate Performance Fee (Carry) Receivable Balance (RHS) $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Note Realized carry flow through rate is calculated as the net realized carry for the period as a % of the BOP net performance fee 'carry, receivable balance: Source Company Data. Morgan Stanley Research Exhibit 4: Net Performance Fee Receivable Balance Per Share Roll Forward Net Performance Fee (Carry) Receivable Balance Rollfoward 2011 2012 2013 2014 2015E BoP $3.41 $1.39 $2.64 $3.49 $1.31 Add: Fund Apprec ($1.10) $2.68 $4.60 $0.15 $1.00 Less: Realized Gain ($0.92) ($1.43) ($3.75) ($2.33) ($1.39) EoP $1.39 $2.64 $3.49 $1.31 $0.92 Flow Through Rate (D/o): Represents % of BoP Carry Balance that is Realized in Cash 2011 2012 2013 2014 2015E Realized Carry 26.9% 103.0% 142.0% 66.8% 106.2% Total Carry -32.3% 193.5% 173.9% 4.3% 76.2% Note Realized carry flow through rile IS calculated as the net realized carry lot the period as a % of the BOP net performance fee Kano receivable per share balance: Source: Company Data, Morgan Stanley Research Fee-paying AUM outflows in credit net outflows to fee-paying AUM in credit of -$475m in 2014 or -0.5%, improved vs outflows of 41.5b in 2013 or -3.1%. In our forward look we expect this stabilizes and build in solid growth from Athene. All in, were expecting about -S13b in gross fee-paying inflows in each 2015-16, and on a net basis (net of outflows) we're expecting net inflows of $9.2b and $6.1b in 2015-16. Additionally, we're baking in $3b of additional sub-advised assets from Athene in each 2015-16. Potential upside to estimates if APO successfully scales the newly announced sub-advised relationship with Oppenheimer, but it's still early days and details of the product remain light (questions around specific type of credit products, liquidity provisions for retail, economics, risk mgmt, etc). 5 EFTA00593636 Morgan Stanley Apollo Global Management LLC I April 1. 2015 MORGAN STANLEY RESEARCH Exhibit 5: Net Organic Fee-Paying AUM Flows in Credit (8MM) 2,500 2,000 1,500 1,031 2,017 1,000 500 0 (500) (444) (1,000) (1,500) (2,000) (1,541) 2010 2011 2012 2013 7 (472) 2014 Note: Net organic flows in credit are calculated by summing the subscriptions/capital raised, distributions and redemptions lines in Mu M roll forward table: Source Company Data, Morgan Stanley Research Founder and significant shareholder lock-ups expire March 29th: this is worth 7.6% of share count which could pressure the shares near-term. While it's possible none could sell, history suggests partial selling. CNS Monitoring fee expires in 4Q14, drops to zero in 1Q15: We flag as a headline risk given the magnitude with an expected 29% decline in credit management fee revenues in 1Q15. This is worth 8c to 1Q1S EPS. But, we're not as concerned about this falling out of the run rate in 1Q1S because it's been expected for sometime now and does not impact cash earnings nor the dividend. 6 EFTA00593637 Morgan Stanley Apollo Global Management LLC I April 1, 2015 MORGAN STANLEY RESEARCH Model Summary Exhibit 6: APO Model Summary .4. 40 044691 444049•49•44 NOS 1••••••. IlOem C••••••••00 743 977 4121 lN /20 Pr 21 Y 430 III 1217 401 es Ian 14.1 11 IM 11 I II/ 409 It) Il 21.4 1.21. I». 123 •97 114 CO 944 X0 140 7/4 20 792 Pno. ~ow Occrono Ionn II MS /1•••• NI Pane pc••••••8 41.1 1•0•• .4044 IM 10.4. SIR Cat. Deaf Ps 00 Ca/ 48.0. Pm In IC ~II lÆ 0494441044~ Fn 99104,9449444444 090.14.• 199s) Idler fa ~IT Sner. FRF ~I ~ea Flee Cap 1••••••••••• kw. tr. 1014 1311 4.471. PR 1119 ~Ian O~0" tel. 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An Ca cam Iknalla 444 anet 14441~4 laa••• 0~ In ~op a ~Ion In am ~a rn.113.1.1aTOA 4•10-- Caldial021.1012.114~1 —IV ...natal~ con ~no ontano•noan L IN "—I 1/021 1471 101 1101 $37/ 39 1210 0-11 ». • OM 5 •411 $ OU 5 ON a 082 • OM $ 11 $ 32. $ RI $ I27 4 Ill $ 411 & • $ 42? 4 014 4 tie $ 010 $ 110 Source: Company Data. Morgan Stanley Research lei fan 0 ~town TRY (Is CIO/ III.» —11" P•13.••• Covo/ li/0/0/0. EPP. 10,~ • 1/10I Oat / /4/00 Caw rar~ (ca. /114 1/004 / 11•414. It/ 04 • ••••••59 PM OM OM OM OM OM 211% OM OM OM OM NA nm mm mm mm mm 444% Ma NM II 404 42014 OM V« 08% VI 8114 »a AM 404% PM OM na II 2l>% M2% MO% Nn 35 011 29 9% DM 44 >la 3/ 2% 3/ • .11 41. 46 1" 4.44134.on ~awn. Ohas 14 Inn %A.A1 ~ an aDnPoa. AIM ~1 Gab MOM faara 0~ II001/sW 11~ Oaam • IS ibrAuld Psi now Me Alm lo4 nos / inen~ 100/0(0 hwarw'91✓.1w«0y9p0Y If /1/4 100.0 84 /00/84 o.9Ir..9 1w 4yyel 310 499 410 w> »3 )0 7 444 ICO • 100 170 5/ 12%2 14 1 0 II 01 41 01 49 *9 1110 I11 4a0 004 076 W. 209 I) D3 »I 298 249 5 4112 932 »I1 R>I III/ 45 511 42 GI 42 >I 104 Ifni u2 m0 WO no* 44 12. Ill Nl Ol• 0 4* 111.1) MO 04.11 1041 SI OA OD CM *II 1.0 41 rk lea *a tall la 14 313 331 313 la ear illaf 443% • III la of% 011 410% NJ% 43% /a 31% fa 11011 .10% •2 1. 11411 MR 4T4% 41% 4MI Yea 42% iIa 31% la% iA 1.1% 30% IR refa MI% 30% lR 6101 10% 3.13% 412% 20% 4»4 1.4% MI% a% 04% • TM *3% 811% II « 2•11% 04% 24% 74% *0% 71% 7 EFTA00593638 Morgan Stanley Apollo Global Management LLC I April 1. 2015 MORGAN STANLEY RESEARCH Valuation and Risks Alternative Asset Managers: We value the stocks using a sum of the parts valuation supported by a discounted cash flow. Our DCF (COE of 11-14%, free cash flow = distributable earnings, terminal growth rate = 3% and betas benchmarked off BX's 1.6x) captures the long-term value of the business model, while the sum of the parts captures some of the shorter-term volatility. For our SOTP, we use 2016 "Core" FRE and apply a 15x multiple which is a 1-2 turn premium to traditionals reflecting value in long term locked up capital; apply 12x multiple on BDC income share; use DCF to estimate future carry and apply discount rate to represent volatile nature of carry; 10% haircut on accrued carry; 10% haircut on B/S assets. Apollo Global Management: Upside risks indude better FPAuM growth, accelerated capital deployment and better returns. Downside risks: declining valuations reduce cash earnings (fewer exits or lower multiples); slower deployment. 8 EFTA00593639 Morgan Stanley Apollo Global Management LLC I April 1, 2015 MORGAN STANLEY RESEARCH Disclosure Section The intimation and opinions in Morgan Stanley Research were prepared by Morgan Stariey & Co. MC, at Morgan Stariey C.T.V.M. S.A., and/or Mogan Stanley Me/doe, Casa de Boise, S.A. de C.V., and/or Morgan Stanley Canada Limited. As used in this disclosure section, "Morgan Stanley" includes Morgan Staley & Co. LLC. Morgan Stanley C.T.V.M. S.A., Morgan Stanley Mexico, Casa de Bdsa, S.A. de C.V., Morgan Staley Canada United and their affiliates as necessary. For important dsdosures, stock price charts and equity rating histories regarding companies that are the subject d this report, please see the Mogan Stanley Research Disclosure Wetsite at www.morganstarley.cornfreseardidsdosures, a contact yar investment representatise or Morgan Stariey Research at 1585 Broadway, (Attention Research Management). NewYak, W, 10036 USA. For seriatim methodology and risks agcnni-dted with any price targets referenced in this research report, please contact the Client Support Team as blobs: US/Canada Hong Kong +862 2848-5999; Latin America (US.% London +44 (0)20-7425-8169: Singapore +65 6834-693Q Sydney +61 (0)2-9770-1505; Tokyo +81 (0)36836-90w. Atternatisely you may contact yar indastment rep esentative a Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New Yak, NY 10036 USA. Analyst Certification The fdlcming analysts hereby certify that their dews about the companies aid their vacuities discussed in this report are accurately expressed and that they have not retailed and will not mese direct a indeed compensation in exchange for expressing specific recommendations a sieves in this report: Mchael Cyprys. Unless otherwise stated, the indsiduals listed on the caw page of this repot are research analysts. Global Research Conflict Management Policy Mogan Staley Research has been published in accordance with cur conlict management policy, ssilch is aeilade at www.maganstanley.com/institutionaVresearchroonftictpolicies. Important US Regulatory Disclosures on Subject Companies As of Februay 27, 2015, Mogan Stanley beneficialy owned 1% a more eta class of common equity securities of the following companies coated in Mogan Stariey Research: Apollo Global Management LLC, BlackRock Inc., KKR & CO. LP., Oaktree Capital Group. LLC. The Blackstone Group L.P.. The Carlyle Group LP., WisdamTree Insestrients. Inc.. Within the last 12 months. Morgan Stanley managed a comanaged a public casing (or 144A offering) dsecuities cf Apollo Global Management LLC. Ares Management, L.P., Franklin Resources Inc.. Insesco. KKR & CO. L.P., Legg Mason Inc.. Oaktree Capital Group, LLC. CM Asset Management Plc. The Blackstone Group LP.. The Carlyle Group LP.. Within the last 12 morths. Morgan Stanley has received canpensation for insestment banking senices from Apollo Global Management LLC, Ares Management. LP.. BlackReck Inc., Franklin Resources Inc., blase°. KKR & CO. LP., Legg Mason Inc.. Oaktree Capital Group, LLC, CM Asset Management Plc. The Blackstone Group L.P., The Carlyle Group LP.. Virtus Indastment Partners Inc.. In the next 3 months. Morgan Stanley expects to recehe a intends to seelc compensation for investment banking senices from AllianceBernstein Holding LP., Apollo Global Management LLC. Ares Management, LP., BladcRcck Inc.. Franklin Resources Inc., Inesco, KKR & CO. LP., Legg Mason Inc., LPL Insestment Holcfings Inc., Oaktree Capital Group, LW, OM Asset Management Plc, I Rase Price Group, Inc.. The Blackstone Group LP., The Carlyle Group LP., Virtus Investment Partners Inc.. Waddell & Reed Financial Inc. WisdomTree Insestments, Inc.. Within the last 12 maths. Morgan Stanley has received compensation fix predicts and senices ether than investment tanking sconces from AttianceBernsteinliadng LP.. Apollo Global Management LLC. Ares Management, LP.. BlackRock Inc., Federated Imestas, Inc.. Franklin Resources Inc., Imesco, Janus Capital Group Inc.. KKR & CO. LP., Legg Mason Inc.. LPL Imestment Holdings Inc., Oaktree Capita Group, LLC, OM Asset Management Plc, T. Rave Price Group. Inc., The Blackstone Group LP., lie Carlyle Group LP., Virtus Investment Partners Inc., Waddell & Reed Financial Inc, WisdomTree Investments. Inc.. Within the last 12 months. Morgan Stanley has presided or is poking inastment banking sauces to, or has an investment banldng client relationship with the blotting company: AllanceBemstein Holding LP.. Apollo Global Management I1C. Ares Management, L.P., BlackRock Inc.. Franklin Resources Inc., hewn KKR & CO. LP., Leg Mason Inc., LPL Insestmentl-bldngs Inc., Oaktree Capital Group, LLC, OM Asset Management Plc, T. Rowe Price Group. Inc., The Blackstone Group LP., The Carlyle Group LP.. Virtus Investment Partners Inc., Waddell & Reed Financial Inc, WrsdomTree Insestments, Inc.. Within tie last 12 months. Morgan Stanley has either presided or is praiding non-insestment tanking, securities-related senices to andla in the past has entered into en agreement to proAde sates or has a client relationship with the following company: AllianceBemstein Holding LP., Apollo Global Management LLC, Ares Management. LP.. BlackReck Inc., Federated blasters, Inc., Franklin Resources Inc.. base). Janus Capital Group Inc., KKR & CO. LP., Legg Mason Inc.. LPL Inastment Holdings Inc.. Oaktree Capital Group. LLC, OM Asset Management Plc. T. Rowe Price Group. Inc., The Blackstone Group LP., The Carlyle Group LP., Virtus Imestment Partners Inc., Waddell & Reed Financial Inc. WisdomTree Imestments, Inc.. Mogan Stariey & Co. LLC makes a market in the securities d AJlianceBernsteinl-bldng LP., Apollo Global Management LLC, BlackRock Inc., Federated Insestas, Inc., Franklin Resources Inc.. Irnesca Janus Capital Group Inc., KKR & CO. L.P., Legg Mason Inc., LPL Investment I-bldngs Inc.. Oaktree Capital Group, LLC, I Rase Price Group, Inc.. The Blackstone Group LP.. The Carlyle Group LP., Virtus Irnestment Partners Inc., Waddell & Reed Financial Inc, VVisdoniTree knestrnents. Inc.. The equity research analysts a strategsts principally responsible for the preparation d Morgan Stariey Research have received compensation based upon serious factors, including quality of research invests client feedback. stock picking, competithe &tors, firm revenues aid entail investment banldng revenues. Morgan Staley and its affiliates do business that relates to companies/instruments coned in Morgan Staley Research. including market making, poking lieudity and specialized trafing, risk arbitrage and other proprietary tracing, find maregement, commercial banking. extension of credit, investment senices and insestmert banking. Morgan Stanley sells to and buys from customers the securitiesfinstrumerts d companies cowed in Morgan Staley Research on a pincipal basis. Morgan Stanley may have a position in the debt of the Company a instruments discussed in this report. Certain dsclosures listed atom are also for compliance with applicable regulations in ron-IJS jurisdictions. STOCK RATINGS Mogan Stanley uses a relative rating system using terms such as Cnerweiglt, Equalmeight, Not-Rated a Underweight (see definitions below). Morgan Stanley does not assign ratings of Buy, Hold a Sell to the stocks we coat. Oameight, Equalmeight. Not-Rated and Underweight are not the equivalent of buy, hold and sell. Imestas should carefirly real the defiritions of all ratings used in Morgan Staley Research. In addition, since Morgan Stanley Research contains more complete information concerning the analyst's stews, investors should carefully read Morgan Staley Research. in its eatery, ad not infer the contents from the rating alone. In any case, ratings (a research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the inasta's existing holdings) and other considerations. Global Stock Ratings Distribution (as of March 31, 2015) For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings d Oarweight, Equal-weight, Not-Rated aid Undemeight. Morgan Stanley does not assign ratings of Buy, Hold a Sell to the stocks we caper. Overweight. Equal-milt Not-Rated ad Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisni regulatory requirements. we correspond Oadvitight, ar most positive stock rating, with a buy recommendation; we command 9 EFTA00593640 Morgan Stanley Apollo Global Management LLC I April 1, 2015 MORGAN STANLEY RESEARCH [goal-ought ard N -Rated to hold and Underweight to sell recommendations. respect*. COVERAGE UNIVERSE INVESTMENT BANKING CUENTS QBC) STOCK RATING CATEGORY COUNT % OF TOTAL COUNT % OF TOTAL % OF RATING IBC CATEGORY Overweight/Buy 1164 35% 331 43% 28% Equal-weight/Hold 1466 44% 353 46% 24% Not-Rated/Hold 100 3% 11 1% 11% Undenneight/Sell 605 18% 80 10% 13% TOTAL 3,335 775 Data include common stock and ADFts sunnily assigned ratings. Inwstmert Banking Clients are companies from Mom Morgan Stanley remised imestment barking compensation in the last 12 months. Analyst Stock Ratings aerveight (O). The stoc's tots return is expected to exceed the awrage total return of the analyst's industry (cr industry team's) overage unhase, on a risk-adjusted basis. over the next 12-18 months. Equalmeight (E). The stock's total velum is expected to be in line with the awage total return d the analyst's industry (a industry team's) coverage unherse, an a risk-aciusted basis. ow the ned 12-18 months. Not-Rated (hR). Curretly the analyst does not hae adequate comicticn about the stock's total return relative to the awage total return of the analysts industry (a industry team's) cowrage unherse, an a risk-aclusted basis, ow( the next 12-18 months. Underweight (U). The stock's total retail is expected to be below the aerage total return of the analyst's industry (a industry teams) co unverso. co a risk-aciusted basis, ow the next 12-18 maths. Unless otherwise specified, the time frame fix price targets included in Morgan Stanley Research is 12 to 18 months. Analyst Industry Views Attract* (A): The analyst expects the perk:mance d his a let' industry covamge unherse oiler the next 12-18 months to be attracthe %.s. the relevant broad market benchmark. as indcated below. In-Line (I): The analyst expects the periormanoe of his a her industry courage whose ow the next 12-18 months to be in line with the rely ent broad market benchmark, as indicated taw Cautious (C): The analyst Jews the performance of his a her industry coverage unkerse ow the next 12-18 months with caution is. the releent broad market handwork, as indicated below. Benchmarks fa each region ae as follows: North America - S&P 500 Latin America - relevant MSCI country index a MSCI Latin America Index: Europe - MSCI Europe; Japan - T0PM Asia - relevant MSCI country index or MSCI sub -regional index a MSCI AC Asia Pacific ex Japan Index. Stock Price, Price Target and Rating History (See Rating Definitions) Apollo Global Management LLC (AP0.N) - As of 3/31/15 in US0 Industry : US Asset Managers 55 50 45 35 )0 25 20 15 10 0 03/•1 43/01 0341 2012 20 3 24 4 Stock Rating Nistoryl 3/1/12 I NA/I) 9/11/13 12/15/14 1 u/I •E/I •PKV1 4,11A/I LOMA •E/I 4_0/I •U 33 34 NA 34 NA —.—.—a- •~•~ .-....,, 24 1 . re r I ..-e----- Pl IAIMI JIJIAISIOINIDI JIF MIAIMIJIJIAISIOINI CI I )I f MI AIMI JI JIAISIOINIDI ) IE nl Price Test History! 9/11/13 I 33) 11/13/13 3/12/15 1 23 Source: Morgan Stanley Research Stock Price (Not Covered by Current Analyst) — Stock Price (Covered by Current Analyst)Im Stock and Industry Ratings (abbreviations below) appear as • Stock Rating/ Industry View Steck Ratings: Overweight (0) Equal-weight (E) Underweight (V) Not-Rated (NR) Ito Rating Available (NA) Industry View: Attractive (A) In-line (I) Cautious (C) No Rating (SR) Effective January 13. 2014. the stocks covered by Morgan Stanley Asia Pacific will be rated relative to the analyst's industry (or industry teare•) coverage. 03/41 2015 1 0/I) 11.45/13 t C/I) 1/16/14 I WI) 2/24/14 I C/I) 5/12/14 1 INI/1) 34) 1/14/14 1 NA) 2/24/14 34) 5/1244 I NA) 12/15/14 I 24) Date Format : MR/DO/YY Price Target u• No Price Target Assigned (MA) Effective January 13. 2014. the industry view benchmarks for Morgan Stanley Asia Pacific are as follows: relevant MSCI country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index. 10 EFTA00593641 Morgan Stanley Apollo Global Management LLC I April 1, 2015 MORGAN STANLEY RESEARCH Important Disclosures for Morgan Stanley Smith Barney LLC Customers Important &closures regarding the relationship between the companies that are the subject d Morgan Staley Research and Morgan Stanley Smith Barney LLC a Morgan Stanley or any of their affiliates. are mailable cn the Morgan Stanley Wealth Management &closure website at www.maganstanley.com/onlinaresearchasclosures. 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Third-pary data paiders make no warranties or representaticrs relating to the accuracy, completeness. a timeliness of the data they provide and shall not bane liability for any damages relating to such data The Global Industry Classificatiai Standard (GICS) was daeloped by and is the exd ushe property of MSG and S&P. Morgan Staley Research a patens d it may not be reprinted, sold a rectstributed without the written consent of Morgan Stanley. Mogan Staley Research. a any pi:dim thereof may not be reprinted sold or redistributed without the written consent of Morgan Stanley. INDUSTRY COVERAGE: US Asset Managers CONPANICTICKM) RA11NG(AS an PACE' (03/3112015) Cyprys CFA, CPA, Michael J. Apollo Sobel Management LLC (APO.N) U (12/15/2014) $21.60 hes Management L.P. (ARES.N) E(121152014) $18.54 KKR &CO. L.P. (10C.R.N) 0(12/152014) $22.81 Oaktree Capital Group. LLC(01101) 002/15/2014) $51.66 The Blackstone Group L.P. (BXN) 0(12/152014) $38.89 The Cadge Group L.P. (CGO) E (12/152014) $27.10 Grass& CFA, Betsy L BackRock Inc. (BLKN) 0(05/12/2014) $365.84 Franklin Resources Inc. (BEN.N) E(05/122014) $51.32 kbesco (IVZN) 0E(11/182014 (05/122014) $39.69 CMAsset Management c MN) (OMF $18.64 T. Rowe Rice croup.Inc,Fl (MONO) E (06/122014) $80.98 Whitehead CFA, Thomas FilianceBemstein Holding L.P. (AB.N) E(05/122014) $30.87 Federated 'mantes. Inc. (RI.N) U (05/122014) $33.89 Janus Capital Group Inc. (JNS.N) E (09/292014) $17.19 Legg Mason Inc. (LMN) E(05/122014) $55.20 LPL hnestment Holdings Inc. (LPLAO) E(05/122014) $43.86 Wass Irhestment Partners Inc. (\RTSO) E (05/122014) $130.77 Waddell & Reed Rnancial Inc (VVDR.N) E (05022014) $49.54 ViatsdomTree kwestments, Inc. (WETF.0) 0(061092014) $21.46 Stock Ratings are subject to change. Reese see latest research for each company. • listaical prices are not split adjusted. C; 2015 Morgan Stanley 12 EFTA00593643