3. INVESTMENTS

The following table represents Apollo’s investments:


	June 30, 2013		December 31, 2012
Investments, at fair value	$	1,736,703	$	1,744,412
Other investments		397,358		393,684

Total Investments	$	2,134,061	$	2,138,096

Investments, at Fair Value

Investments, at fair value, consist of financial instruments held by AAA, investments held by the Apollo Senior Loan Fund, the Company’s investment in HFA and other investments held by the Company at fair value. As of June 30, 2013 and December 31, 2012, the net assets of the consolidated funds (excluding VIEs) were $1,683.4 million and $1,691.3 million, respectively. The following investments, except the investment in HFA and Other Investments, are presented as a percentage of net assets of the consolidated funds:


	June 30, 2013											December 31, 2012
	Fair Value											Fair Value
Investments, at Fair Value – Affiliates	Private Equity		Credit		Total		Cost		% of Net Assets of Consolidated Funds			Private Equity		Credit		Total		Cost		% of Net Assets of Consolidated Funds
Investments held by:

AAA	$	1,659,093	$	—	$	1,659,093	$	1,498,965		98.6	%	$	1,666,448	$	—	$	1,666,448	$	1,561,154		98.5	%
Apollo Senior Loan Fund		—		27,218		27,218		27,131		1.6			—		27,653		27,653		27,296		1.5
HFA		—		48,658		48,658		59,472		N/A			—		48,723		48,723		57,815		N/A
Other Investments		1,734		—		1,734		3,272		N/A			1,588		—		1,588		3,563		N/A

Total	$	1,660,827	$	75,876	$	1,736,703	$	1,588,840		100.2	%	$	1,668,036	$	76,376	$	1,744,412	$	1,649,828		100.0	%

Securities

At June 30, 2013 and December 31, 2012, the sole investment held by AAA was its investment in AAA Investments, L.P. (“AAA Investments”), which is measured based on AAA’s share of net asset value of AAA investments. The following tables represent each investment of AAA Investments constituting more than five percent of the net assets of the funds that the Company consolidates (excluding VIEs) as of the aforementioned dates:


	June 30, 2013									December 31, 2012
	Instrument Type		Fair Value		Cost		% of Net Assets of Consolidated Funds			Instrument Type		Fair Value		Cost		% of Net Assets of Consolidated Funds
Athene Holding Ltd.⁽¹⁾		Equity	$	1,617,445	$	1,276,366		96.1	%		Equity	$	1,578,954	$	1,276,366		93.4	%

(1)	Two subsidiaries of AAA Investments, AAA Guarantor-Athene, L.P. and Apollo Life Re Ltd., own the majority of the equity of Athene Holding Ltd.

AAA Investments owns through its subsidiaries the majority of the equity of Athene Holding Ltd. (together with its subsidiaries, “Athene”), the direct or indirect parent of the following principal operating subsidiaries: Athene Life Re Ltd., a Bermuda-based reinsurance company focused on the fixed annuity reinsurance sector, Athene Annuity & Life Assurance Company (formerly Liberty Life Insurance Company), a Delaware-domiciled (formerly South Carolina-domiciled) stock life insurance company focused on retail sales and reinsurance in the retirement services market, Athene Life Insurance Company, a Delaware-domiciled (formerly Indiana-domiciled) stock life insurance company focused on the institutional funding agreement backed note and funding agreement markets, and Presidential Life Insurance Company, a New-York-domiciled stock life insurance company focused on retail sales of fixed annuity products principally in New York.

During the fourth quarter of 2012, AAA and AAA Investments consummated a transaction whereby a wholly-owned subsidiary of AAA Investments contributed substantially all of its investments to Athene Holding Ltd. in exchange for common shares of Athene Holding Ltd., cash and a short term promissory note (the “AAA Transaction”). After the AAA Transaction, Athene Holding Ltd. was AAA’s only material investment and as of June 30, 2013 and December 31, 2012, AAA through its investment in AAA Investments was the largest shareholder of Athene Holding Ltd. with an approximate 72% and 77%, respectively, ownership stake (without giving to effect to restricted common shares issued under Athene’s management equity plan).

Apollo Senior Loan Fund

On December 31, 2011, the Company invested $26.0 million in the Apollo Senior Loan Fund. As a result, the Company became the sole investor in the fund and therefore consolidated the assets and liabilities of the fund. The fund invests in U.S. denominated senior secured loans, senior secured bonds and other income generating fixed-income investments. At least 90% of the Apollo Senior Loan Fund’s portfolio of investments must consist of senior secured, floating rate loans or cash or cash equivalents. Up to 10% of the Apollo Senior Loan Fund’s portfolio may consist of non-first lien fixed income investments and other income generating fixed income investments, including but not limited to senior secured bonds. The Apollo Senior Loan Fund may not purchase assets rated (tranche rating) at B3 or lower by Moody’s, or equivalent rating by another nationally recognized rating agency.

The Company has classified the instruments associated with the Apollo Senior Loan Fund investment as Level II and Level III investments. All Level II and Level III investments of the Apollo Senior Loan Fund were valued using broker quotes.

HFA

On March 7, 2011, the Company invested $52.1 million (including expenses related to the purchase) in a convertible note with an aggregate principal amount of $50.0 million and received 20,833,333 stock options issued by HFA, an Australian based specialist global funds management company.

The terms of the convertible note allow the Company to convert the note, in whole or in part, into common shares of HFA at an exchange rate equal to the principal plus accrued payment-in-kind interest (or “PIK” interest) divided by US$0.98 at any time, and convey participation rights, on an as-converted basis, in any dividends declared in excess of $6.0 million per annum, as well as seniority rights over HFA common equity holders. Unless previously converted, repurchased or canceled, the note will be converted on the eighth anniversary of its issuance on March 11, 2019. Additionally, the note has a percentage coupon interest of 6% per annum, paid via principal capitalization (PIK interest) for the first four years, and thereafter either in cash or via principal capitalization at HFA’s discretion. The PIK interest provides for the Company to receive additional common shares of HFA if the note is converted. The Company has elected the fair value option for the convertible note. The convertible note is valued using an “if-converted basis,” which is based on a hypothetical exit through conversion to common equity (for which quoted price exists) as of the valuation date. The Company separately presents interest income in the condensed consolidated statements of operations from other changes in the fair value of the convertible note. For the three and six months ended June 30, 2013, the Company recorded $0.8 million and $1.7 million, respectively, in PIK interest income included in interest income in the condensed consolidated statements of operations. For the three and six months ended June 30, 2012, the Company recorded $0.8 million and $1.6 million, respectively, in PIK interest income included in interest income in the condensed consolidated statements of operations. The terms of the stock options allow for the Company to acquire 20,833,333 fully paid ordinary shares of HFA at an exercise price in Australian Dollars (“A$”) of A$8.00 (exchange rate of A$1.00 to $0.91 as of June 30, 2013) per stock option. The stock options became exercisable upon issuance and expire on the eighth anniversary of the issuance date. The stock options are accounted for as a derivative and are valued at their fair value under U.S. GAAP at each balance sheet date. As a result, for the six months ended June 30, 2013 and 2012, the Company recorded an unrealized loss of approximately $1.7 million and $9.7 million, respectively, related to the convertible note and stock options within net gains from investment activities in the condensed consolidated statements of operations. For the three months ended June 30, 2013 and 2012, the Company recorded an unrealized loss of $5.8 million and $13.1 million, respectively, related to the convertible note and stock options within net gains (losses) from investment activities in the condensed consolidated statements of operations.

The Company has classified the instruments associated with the HFA investment as Level III investments.

Net Gains (Losses) from Investment Activities

Net gains (losses) from investment activities in the condensed consolidated statements of operations include net realized gains from sales of investments, and the change in net unrealized gains (losses) resulting from changes in fair value of the consolidated funds’ investments and realization of previously unrealized gains (losses). Additionally net gains (losses) from investment activities include changes in the fair value of the investment in HFA and other investments held at fair value. The following tables present Apollo’s net gains (losses) from investment activities for the three and six months ended June 30, 2013 and 2012:


	For the Three Months Ended June 30, 2013
	Private Equity		Credit			Total
Realized gains on sales of investments	$	—	$	167		$	167
Change in net unrealized gains (losses) due to changes in fair values		7,064		(6,115	)		949

Net Gains (Losses) from Investment Activities	$	7,064	$	(5,948	)	$	1,116


	For the Three Months Ended June 30, 2012
	Private Equity			Credit			Total
Realized gains on sales of investments	$	—		$	45		$	45
Change in net unrealized losses due to changes in fair values		(15,149	)		(13,110	)		(28,259	)

Net Losses from Investment Activities	$	(15,149	)	$	(13,065	)	$	(28,214	)


	For the Six Months Ended June 30, 2013
	Private Equity		Credit			Total
Realized gains on sales of investments	$	—	$	408		$	408
Change in net unrealized gains (losses) due to changes in fair values		54,833		(1,992	)		52,841

Net Gains (losses) from Investment Activities	$	54,833	$	(1,584	)	$	53,249


	For the Six Months Ended June 30, 2012
	Private Equity		Credit			Total
Realized gains on sales of investments	$	—	$	136		$	136
Change in net unrealized gains (losses) due to changes in fair values		138,543		(9,185	)		129,358

Net Gains (Losses) from Investment Activities	$	138,543	$	(9,049	)	$	129,494

Other Investments

Other Investments primarily consist of equity method investments. Apollo’s share of operating income (loss) generated by these investments is recorded within income from equity method investments in the condensed consolidated statements of operations.

The following table presents income (loss) from equity method investments for the three and six months ended June 30, 2013 and 2012:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
Investments:
Private Equity Funds:
AAA Investments	$	6		$	(1	)	$	33		$	83
Apollo Investment Fund IV, L.P. (“Fund IV”)		—			(2	)		—			(2	)
Apollo Investment Fund V, L.P. (“Fund V”)		(1	)		24			6			29
Apollo Investment Fund VI, L.P. (“Fund VI”)		(5	)		(64	)		1,073			2,548
Apollo Investment Fund VII, L.P. (“Fund VII”)		11,064			(858	)		31,477			23,223
Apollo Natural Resources Partners, L.P. (“ANRP”)		152			137			163			174
AION Capital Partners Limited (“AION”)		369			—			553			—
Apollo Asia Private Credit Fund, L.P. (“APC”)		2			—			3			—
Credit Funds:
Apollo Special Opportunities Managed Account, L.P. (“SOMA”)		30			(30	)		414			666
Apollo Value Investment Fund, L.P. (“VIF”)		(1	)		(4	)		6			15
Apollo Strategic Value Fund, L.P. (“SVF”)		(2	)		(3	)		1			12
Apollo Credit Liquidity Fund, L.P. (“ACLF”)		(36	)		78			668			1,966
Apollo/Artus Investors 2007-I, L.P. (“Artus”)		(2	)		(104	)		(2	)		291
Apollo Credit Opportunity Fund I, L.P. (“COF I”)		563			(1,851	)		4,137			7,168
Apollo Credit Opportunity Fund II, L.P. (“COF II”)		(304	)		522			584			2,955
Apollo Credit Opportunity Fund III, L.P. (“COF III”)		(11	)		—			(11	)		—
Apollo European Principal Finance Fund, L.P. (“EPF I”)		3,079			150			2,748			794
Apollo Investment Europe II, L.P. (“AIE II”)		349			(400	)		406			503
Apollo Palmetto Strategic Partnership, L.P. (“Palmetto”)		259			38			842			549
Apollo Senior Floating Rate Fund Inc. (“AFT”)		(3	)		1			5			11
Apollo Residential Mortgage, Inc. (“AMTG”)		22	⁽¹⁾		403	⁽²⁾		508	⁽¹⁾		555	⁽²⁾
Apollo European Credit, L.P. (“AEC”)		71			(8	)		147			27
Apollo European Strategic Investments, L.P. (“AESI”)		106			(31	)		258			162
Apollo Centre Street Partnership, L.P. (“ACSP”)		108			(67	)		289			(67	)
Apollo Investment Corporation (“AINV”)		2,037	⁽¹⁾		—			1,410			—
Apollo European Principal Finance Fund II, L.P. (“EPF II”)		23			316			86			316
Apollo SK Strategic Investments, L.P. (“SK”)		23			—			49			—
Apollo SPN Investments I, L.P.		501			—			88			—
Apollo Tactical Income Fund Inc. (“AIF”)		(10	)		—			(5	)		—
Apollo Franklin Partnership, L.P.		(7	)		—			(7	)		—
Real Estate:
Apollo Commercial Real Estate Finance, Inc. (“ARI”)		93	⁽¹⁾		268	⁽²⁾		316	⁽¹⁾		516	⁽²⁾
AGRE U.S. Real Estate Fund, L.P.		227			(33	)		241			(86	)
CPI Capital Partners North America LP		16			(10	)		74			(31	)
CPI Capital Partners Asia Pacific, L.P.		(6	)		32			(4	)		37
Apollo GSS Holding (Cayman), L.P.		(1	)		—			(5	)		—
BEA/AGRE China Real Estate Fund, L.P.		(8	)		—			(8	)		—
Other Equity Method Investments:
VC Holdings, L.P. Series A (“Vantium A/B”)		—			(1	)		13			(306	)
VC Holdings, L.P. Series C (“Vantium C”)		1,333			17			1,325			(133	)
VC Holdings, L.P. Series D (“Vantium D”)		46			190			(1	)		432
Other		8			452			—			5

Total Income (Loss) from Equity Method Investments	$	20,090		$	(839	)	$	47,880		$	42,412

(1)	Amounts are as of March 31, 2013.

(2)	Amounts are as of March 31, 2012.

Other investments as of June 30, 2013 and December 31, 2012 consisted of the following:


	Equity Held as of
	June 30, 2013			% of Ownership			December 31, 2012			% of Ownership
Investments:
Private Equity Funds:
AAA Investments	$	997			0.058	%	$	998			0.057	%
Fund IV		9			0.015			9			0.015
Fund V		113			0.017			173			0.014
Fund VI		8,746			0.094			9,814			0.094
Fund VII		158,104			1.280			164,773			1.316
ANRP		2,782			0.832			2,355			0.903
AION		1,178			10.000			625			10.000
APC		19			0.059			17			0.058
Credit Funds:
SOMA		6,298			0.826			5,887			0.643
VIF		148			0.105			141			0.093
SVF		23			0.078			137			0.076
ACLF		9,723			2.573			9,281			2.579
Artus		665			6.156			667			6.156
COF I		30,210			1.918			39,416			1.924
COF II		10,362			1.404			19,654			1.429
COF III		526			2.439			—			—
EPF I		21,520			1.363			18,329			1.363
AIE II		6,734			2.269			7,207			2.205
Palmetto		14,491			1.186			13,614			1.186
AFT		103			0.034			98			0.034
AMTG⁽³⁾		4,527	⁽¹⁾		0.623	⁽¹⁾		4,380	⁽²⁾		0.811	⁽²⁾
AEC		2,070			1.061			1,604			1.079
AESI		3,368			1.006			3,076			0.991
ACSP		7,484			2.456			5,327			2.457
AINV⁽⁴⁾		53,172	⁽¹⁾		3.095			51,761			2.955
EPF II		11,764			2.268			5,337			1.316
SK		1,449			0.992			1,002			0.988
Apollo SPN Investments I, L.P.		2,611			0.845			90			0.083
CION Investment Corporation		1,000			2.900			1,000			22.207
AIF		95			0.036			—			—
Apollo Franklin Partnership, L.P.		4,993			9.099			—			—
Real Estate:
ARI⁽³⁾		11,737	⁽¹⁾		1.500	⁽¹⁾		11,469	⁽²⁾		2.729	⁽²⁾
AGRE U.S. Real Estate Fund, L.P.		10,873			1.845			5,210			1.845
CPI Capital Partners North America		334			0.414			455			0.413
CPI Capital Partners Europe		5			0.001			5			0.001
CPI Capital Partners Asia Pacific		171			0.039			186			0.039
Apollo GSS Holding (Cayman), L.P.		3,013			4.946			2,428			4.621
BEA/AGRE China Real Estate Fund, L.P.		72			1.031			—
Other Equity Method Investments:
Vantium A/B		67			6.450			54			6.450
Vantium C		3,870			2.071			5,172			2.071
Vantium D		1,932			6.345			1,933			6.345

Total Other Investments	$	397,358					$	393,684

(1)	Amounts are as of March 31, 2013.

(2)	Amounts are as of September 30, 2012.

(3)	Investment value includes the fair value of RSUs granted to the Company as of the grant date. These amounts are not considered in the percentage of ownership until the RSUs are vested, at which point the RSUs are converted to common stock and delivered to the Company.

(4)	The value of the Company’s investment in AINV was $49,767 and $51,351 based on the quoted market price as of June 30, 2013 and December 31, 2012, respectively.

As of June 30, 2013 and December 31, 2012 and for the six months ended June 30, 2013 and 2012, no single equity method investee held by Apollo exceeded 20% of its total consolidated assets or income. As such, Apollo is not required to present summarized income statement information for any of its equity method investees.

Fair Value Measurements

The following table summarizes the valuation of Apollo’s investments in fair value hierarchy levels as of June 30, 2013 and December 31, 2012:


	Level I				Level II				Level III				Totals
	June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012
Assets, at fair value:
Investment in AAA Investments	$	—	$	—	$	—	$	—	$	1,659,093	$	1,666,448	$	1,659,093	$	1,666,448
Investments held by Apollo Senior Loan Fund		—		—		26,781		27,063		437		590		27,218		27,653
Investments in HFA and Other		—		—		—		—		50,392		50,311		50,392		50,311

Total	$	—	$	—	$	26,781	$	27,063	$	1,709,922	$	1,717,349	$	1,736,703	$	1,744,412

There were transfers of investments from Level II into Level III and from Level III into Level II relating to investments held by the Apollo Senior Loan Fund during the three months ended June 30, 2013 and 2012, respectively. There were transfers of investments from Level III into Level II and from Level II into Level III relating to investments held by the Apollo Senior Loan Fund during the six months ended June 30, 2013 and 2012. These transfers were a result of subjecting the broker quotes on these investments to various criteria which include the number and quality of broker quotes, the standard deviation of obtained broker quotes, and the percentage deviation from independent pricing services. For the three and six months ended June 30, 2013 and 2012, there were no transfers between Level I and Level II investments.

The following table summarizes the changes in AAA Investments, which are measured at fair value and characterized as Level III investments:


	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2013		2012			2013			2012
Balance, Beginning of Period	$	1,652,029	$	1,581,773		$	1,666,448		$	1,480,152
Distributions		—		(49,724	)		(62,188	)		(101,795	)
Change in unrealized gains (losses), net		7,064		(15,150	)		54,833			138,542

Balance, End of Period	$	1,659,093	$	1,516,899		$	1,659,093		$	1,516,899

The following table summarizes the changes in the investments in HFA and Other Investments, which are measured at fair value and characterized as Level III investments:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
Balance, Beginning of Period	$	55,407		$	52,571		$	50,311		$	47,757
Acquisition of consolidated fund		—			46,147			—			46,147
Purchases		833			2,809			2,268			3,959
Sale of Investments		—			—			(902	)		—
Change in unrealized losses, net		(5,848	)		(13,688	)		(1,285	)		(10,024	)

Balance, End of Period	$	50,392		$	87,839		$	50,392		$	87,839

The change in unrealized gains (losses), net has been recorded within the caption “Net gains (losses) from investment activities” in the condensed consolidated statements of operations.

The following table summarizes the changes in the investments in the investments in the Apollo Senior Loan Fund, which are measured at fair value and characterized as Level III investments for the three and six months ended June 30, 2013 and 2012:


	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2013		2012			2013			2012
Balance, Beginning of Period	$	—	$	484		$	590		$	456
Purchases of investments		—		—			22			—
Sale of investments		—		(2	)		—			(461	)
Realized gains		—		—			—			9
Change in unrealized gains (losses), net		—		(1	)		9			(6	)
Transfers into Level III		437		—			437			483
Transfers out of Level III		—		(481	)		(621	)		(481	)

Balance, End of Period	$	437	$	—		$	437		$	—

The following table summarizes a look-through of the Company’s Level III investments by valuation methodology of the underlying securities held by AAA Investments:


	Private Equity
	June 30, 2013						December 31, 2012
				% of Investment of AAA					% of Investment of AAA
Approximate values based on net asset value of the underlying funds, which are based on the funds underlying investments that are valued using the following:
Discounted cash flow models	$	1,617,445			97.1	%	$	1,581,975		98.6	%
Listed quotes		48,579			2.9			22,029		1.4

Total Investments		1,666,024			100	%		1,604,004		100	%

Other net (liabilities) assets⁽¹⁾		(6,931	)					62,444

Total Net Assets	$	1,659,093					$	1,666,448

(1)

Balances include other assets, liabilities and general partner interests of AAA Investments. Balance at June 30, 2013 and December 31, 2012 is primarily comprised of $51.3 million and $113.3 million in notes receivable from an affiliate, respectively, less the obligation to the general partner. Carrying values approximate fair value for other assets and liabilities and, accordingly, extended valuation procedures are not required.