28 January 2014 Brokers. Asset Managers & Exchanges Alternative Assot Manager Initiation Rating Company Hold North America United States Apollo Global Management Research Analyst Price at 24 Jan 2014 32.20 (USD1 Price Target 31.00 Brokers, Asset APO N APO US 52-week range 36.22-20.94- Managers & Exchanges 11ric,ipitco relairve Strong performer but solid earnings peaking out soon; initiate at Hold Initiating coverage of APO with a Hold Rating and $31 PT We see APO units trading in a range near current levels over the next 12 months for the following reasons: 1) we see APO as more advanced in its fund realization cycle than peers, a condition likely to continue into 2014, causing distributable earnings (DE) to peak in 2013 or 2014 at the latest, 2) despite a very successful capital raise for Fund VIII at $18bn, DE in 2015-16 is likely to remain well below 2013-14 levels as Fund VIII remains in a capital deployment mode through 2016, and distributions from other large funds will likely have waned, and 3) APO's risk profile is above average with more concentrated positions, and this could restrain APO's PE expansion in 2014 if the market becomes choppier vs. 2013. Positively, mgmt is extremely innovative and several growth initiatives may help buffer the valley in the PE cycle, the strongest being the Athene/Aviva acquisition, which will enable APO to further leverage its credit expertise & grow fee earnings. However, we don't think these efforts will fully offset the DE compression post realization cycle. Ear nings outlook We believe DE, from which cash distributions are paid to unit holders, is the 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 to drop from $3.82 in 2013 to $3.22 in 2014E and $2.70 in 2015E. Key drivers are: 1) exhausting harvested gains over the next several quarters, 2) Fund VIII being in investment mode