EFTA01452594

28 January 2014 Brokers. Asset Managers & Exchanges Alternative Assot Manager Initiation Rating Company tail IMC11::: Hold Apollo Global Research Analyst (+II 212 250-6600 North America Management brian.bedell@db.corn United States Price at 24 Jan 2014 32.20 (USD1 Price Target 31.00 52-week range 36.22-20.94- Brokers, Asset APO N APO US Managers & Exchanges relative ao Strong performer but solid earnings 30 peaking out soon; initiate at Hold 20 Initiating coverage of APO with a Hold Rating and $31 PT 10 1112 7112 1113 7/I We see APO units trading in a range near current levels over the next 12 dissisOletelM•nolle months for the following reasons: 1) we see APO as more advanced in its fund $11000 MOCK (Sas) realization cycle than peers, a condition likely to continue into 2014, causing Performance 1%) 1m 3m 12m distributable earnings (DE) to peak in 2013 or 2014 at the latest, 2) despite a Absolute 5.1 -6.3 53.3 very successful capital raise for Fund VIII at $18bn, DE in 2015-16 is likely to S&P 500 INDEX -2.3 2.2 19.8 remain well below 2013-14 levels as Fund VIII remains in a capital deployment Sow* Doistoloi mode through 2016, and distributions from other large funds will likely have ,•:.7vcat i waned, and 3) APO's risk profile is above average with more concentrated Market Cap IUSO) $12.707 positions, and this could restrain APO's PE expansion in 2014 if the market Shares outstanding (ml 393.8- becomes choppier vs. 2013. Positively, mgmt is extremely innovative and Free float 1%) several growth initiatives may help buffer the valley in the PE cycle, the Volume (24 Jan 2014) 229.268- strongest being the Athene/Aviva acquisition, which will enable APO to further leverage its credit expertise & grow fee earnings. However, we don't think Option volume lund. slits.. 1M 24.047- avg.) these efforts will fully offset the DE compression post realization cycle. Sow* DeastWe Itnritrxi Ea, nings outlook We believe DE, from which cash distributions are paid to unit holders, is the 17011 - NOS - most important earnings metric to value the Alts, rather than economic net income (ENI) that forms Consensus estimates. We forecast APO's DE per unit enk ti to drop from $3.82 in 2013 to $3.22 in 2014E and $2.70 in 2015E. Key drivers aeon OR It Ain 12 Dic l2 are: 1) exhausting harvested gains over the next several quarters, 2) Fund VIII - sures %A. being in investment mode, partially offset by 3) contribution from Aviva. mate: Drundiellant Valuation & Risk With positive revaluation for the Alts, we still think APO will expand its P/E from 10.6x 2014E ENI to over 11-12x 2015E DE 12 months from now, narrowing its discount to the S&P 500 P/E from -40% to -30%. This drives a $31 PT, which implies a total return of 6% over the next 12 months, inclusive of a 9.5% forecast distribution yield for 2014. Downside risks for APO are: 1) a slowdown in US/global economy, 2) a prolonged equity market correction, 3) an inability to generate strong growth organically and/or from Aviva in 2014 that would further reduce DE in '15. 4) an inability to deploy capital in Fund VIII at a reasonable pace & 5) failure to improve PIE vs. traditional asset managers and the market broadly. Upside risks are: 1) stronger investment returns than expected that drive much higher DE than forecast, and 2) much stronger organic growth at Aviva than forecast. Deutsche Bank Securities Inc. Page 33 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0109719 CONFIDENTIAL SDNY_GM_00255903 EFTA01452594