<table><tr><th>From:</th><th>Richard Kahn</th></tr><tr><td>Sent:</td><td>Monday, February 6, 2017 3:01 PM</td></tr><tr><td>To:</td><td>jeffrey E.</td></tr><tr><td>Subject:</td><td>Fwd: APO US: Apollo Global Management: Rating Change - Upgrading to United Buy on States
positive results and a more favorable FRE, return, &amp; dist outlook - BUY -</td></tr></table>

Richard =ahn
HBRK Associates Inc.
575 Lexington =venue 4th Floor
New York, NY 10022

Begin forwarded message:

From: =/b>"Ens, Amanda" <██████████████████>

Subject: =/b>APO US: Apollo =lobal Management: Rating Change - Upgrading to Buy on positive results =nd a more favorable FRE, return, & dist outlook - BUY - United =tates

Date: =/b>February 6, 2017 at 9:21:23 AM =ST

To:/b>"Rich Kahn"

Reply-To: =/b>"Ens, Amanda"

Global Research

Upgrading to Buy on positive results and = more favorable FRE, return, & dist outlook

Rating Change: BUY

PO: 27.00 USD | Price: 22.13 USD

Equity | 06 February =017

## Key takeaways

• =/span>We are upgrading APO to Buy from =eutral on improving FRE, returns, & dist. We raise our PO to $27 =rom $23 (20%+ upside).

• =/span>We take our ENI ests up roughly =0% (7% above consensus) & '18 distribution +4% (11% above =onsensus). 7% yield on '17E.

=/span>The upgrade comes after APO =eported a better than expected 4Q ($0.98 vs. cons/us $0.80/$0.96), with = positive outlook.

FULL REPORT

## Key takeaways (cont.)

## Upgrading APO to Buy =rom Neutral - PO to $27

We are upgrading =PO to Buy from Neutral and raising our PO to $27 from $23 (23% upside =otential plus 7% yield). The rating change is driven by our expectation =or improving fee related earnings (FRE), fund returns, and a rising =istribution. We expect FRE to improve as Fund IX is raised and turns on =-$0.25 benefit initially, -20% to FRE and -10% to ENI, economic net =ncome); returns to improve with economic growth; and distributions to =ise with FRE, a more seasoned Fund VIII, and possible Athene liquidity =vents. We are raising our 2017 and 2018 ENI estimates around 10% due to =ur outlook (- 7% above consensus) and our 2018 distribution +4% (7% =ield on '17) and 11% above consensus.

## Turning point for =undamentals

Apollo has done a =ood job growing its more stable FRE, notably due to significant growth =n its Credit segment, and this should benefit further with Fund IX in =E (we expect it in 2H17 and given strong returns we expect at least a =imilar raise of -$18B). While fund returns picked up meaningfully in =1116 vs. 1H16, we expect returns to remain favorable and likely improve =urther with accelerating economic growth and pro-growth policies. =mportantly, although APO is currently around trough levels for its =istribution (dividend), which had kept us less positive on the stock in =he past, we see this shifting with rising FRE, potential Athene cash =vents, and more capital in the ground (deployed $16B in '16) that is =ikely to generate performance fees and be realized over time given =urther seasoning, strong performance, and a healthy capital markets =ackdrop.

APO reported 4Q =NI/share of $0.98, beating expectations

APO reported ENI/share of $0.98, =eating the Street/our estimates of $0.80/$0.96, due to =etter-than-expected revenue, driven by performance fees and transaction =ees. We would note that the strong quarter was driven in part by an =nticipated positive mark on Athene, which IPO'd in 4Q. However, the core business also =erformed well, with strong performance (+2.1% to +5.9%), healthy =undraising, active deployment and exits, and rising accrued performance =ees. The distribution was relatively strong, at $0.45. =/span>

Attractive risk/reward - =27 PO and 7% yield

We raise our PO to $27, given stronger =RE & returns having a positive impact on our sum-of-the-parts =aluation. We like the risk/reward in APO, and while macro and policy =hanges (tax reform) are still uncertain, we see the positives =utweighing the risks.

Michael Carrier, CFA
Research Analyst
MLPF&S

</=able>

## Turning point for =undamentals (cont.)

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## Turning point for =undamentals (cont.)