Athene Helped Stabilize U.K. Government Bond Market: Apollo Executives

Capital from Athene Holding helped Apollo Global Management stabilize the United Kingdom’s government bond market in October, company executives told securities analysts Wednesday.

Scott Kleinman, the New York-based investment company’s co-president, said Apollo spent $1.1 billion to buy about one-third of the assets pension funds and other institutional investors sold last month to come up with the collateral needed to back “liability-driven investment” strategies during a time of intense market volatility.

Apollo came away with a portfolio of AAA-rated and AA-rated collateralized loan obligations with an average yield over 8%, Kleinman said.

“There was nothing inherently wrong with the CLO tranches we were buying,” Kleinman added. “Those just happened to be the most liquid assets the entities could liquidate in order to cover their leverage and margin issues.”

What It Means

The assets of some of the life insurers backing your clients’ life and annuity guarantees may also be involved in efforts to keep the investment markets moving.

Athene’s Position

Kleinman said that Athene has performed well as a source of stable capital for Apollo, and that the popularity of fixed-rate annuities helped Athene’s retail annuity channel bring $6 billion in capital flowing in.

“The duration and stickiness of Athene’s funding is highly predictable,” he said.

Marc Rowan, Apollo’s CEO, attributed the increase in fixed annuity sales to rising interest rates.

“Consumers prefer 4% and 5% guaranteed yields, versus 2% and 3% guaranteed yields,” he observed.

The Backdrop

Rowan maintained that Apollo was able to make great asset buys in the third quarter, and help stabilize the U.K. government bond market, because world regulators’ response to the 2007-2009 financial crisis has hurt the supply of market stabilizing capital.

“We act as if low interest rates and excess liquidity are the norm,” Rowan said. “They are not. Certainly not over my nearly 40-year career, and not over any sort of long-term investment cycle. But we have an entire generation of investors and investment analysts who have really grown up just seeing the market go in one direction. And we now all know it goes both ways.”

Apollo offers alternative assets that can help buffer investors against bad markets for blue chip stocks, high-grade bonds and other bread-and-butter asset classes, and Apollo has also tried to keep large pools of low-returning, liquid assets in place, to prepare for periods when other players need to sell good assets quickly to raise cash, Rowan said.

“Dry powder now exceeds $50 billion,” he noted. “We excel in this kind of market. We are leaning in.”