FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS

The following tables summarize the valuation of the Company’s financial assets and liabilities by the fair value hierarchy as of March 31, 2014 and December 31, 2013, respectively:



	As of March 31, 2014
	Level I⁽⁵⁾		Level II⁽⁵⁾		Level III		Total
Assets
Investment in AAA Investments⁽¹⁾	$	—	$	—	$	2,147,415	$	2,147,415
Investments held by Apollo Senior Loan Fund⁽¹⁾	—		29,909		—		29,909
Investments in HFA and Other⁽¹⁾	—		—		59,324		59,324
Athene and AAA Services Derivatives⁽²⁾	—		—		206,476		206,476
Investments of VIEs, at fair value⁽⁴⁾	4,378		12,412,705		1,837,451		14,254,534
Total Assets	$	4,378	$	12,442,614	$	4,250,666	$	16,697,658

Liabilities
Debt of VIEs, at fair value⁽⁴⁾	$	—	$	2,105,935	$	10,422,320	$	12,528,255
Contingent Consideration Obligations⁽³⁾	—		—		126,473		126,473
Total Liabilities	$	—	$	2,105,935	$	10,548,793	$	12,654,728



	As of December 31, 2013
	Level I⁽⁵⁾		Level II⁽⁵⁾		Level III		Total
Assets
Investment in AAA Investments⁽¹⁾	$	—	$	—	$	1,942,051	$	1,942,051
Investments held by Apollo Senior Loan Fund⁽¹⁾	—		28,711		892		29,603
Investments in HFA and Other⁽¹⁾	—		—		40,373		40,373
Athene and AAA Services Derivatives⁽²⁾	—		—		130,709		130,709
Investments of VIEs, at fair value⁽⁴⁾	3,455		12,203,370		1,919,537		14,126,362
Total Assets	$	3,455	$	12,232,081	$	4,033,562	$	16,269,098

Liabilities
Debt of VIEs, at fair value⁽⁴⁾	$	—	$	2,429,815	$	9,994,147	$	12,423,962
Contingent Consideration Obligations⁽³⁾	—		—		135,511		135,511
Total Liabilities	$	—	$	2,429,815	$	10,129,658	$	12,559,473


(1)	See note 3 for further disclosure regarding the investment in AAA Investments, investments held by Apollo Senior Loan Fund, and investments in HFA and Other.


(2)	See note 13 for further disclosure regarding the Athene Services Derivative and the AAA Services Derivative.


(3)	See note 14 for further disclosure regarding Contingent Consideration Obligations.


(4)	See note 4 for further disclosure regarding VIEs.


(5)	All level I and II investments and liabilities were valued using third party pricing.

There were no transfers of financial assets into or out of Level I for the three months ended March 31, 2014 and 2013. The following table summarizes the fair value transfers of financial assets between Level II and Level III for positions that existed as of March 31, 2014 and 2013, respectively:



	For the Three Months Ended March 31,
	2014	2013
Transfers from Level III into Level II⁽¹⁾	$309,942	$338,294
Transfers from Level II into Level III⁽¹⁾	141,353	272,593


(1)	Transfers between Level II and III 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 months ended March 31, 2014, transfers of financial liabilities from Level III to Level II and from Level II to Level III relating to liabilities held by the consolidated VIEs totaled $70.3 million and $316.3 million, respectively. There were transfers of debt held by the consolidated VIEs that are valued using broker quotes between Level II and Level III as a result of subjecting broker quotes on these liabilities 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. There were no transfers of financial liabilities into or out of Level I for the three months ended March 31, 2014. For the three months ended March 31, 2013, there were no transfers of financial liabilities between Level I, Level II or Level III.

The following tables summarize the changes in fair value in financial assets, which are measured at fair value and characterized as Level III investments, for the three months ended March 31, 2014 and 2013:



	For the Three Months Ended March 31, 2014
	Investment in AAA Investments		Investments held by Apollo Senior Loan Fund			Investments in HFA and Other			Athene and AAA Services Derivatives		Investments of Consolidated VIEs			Total
Balance, Beginning of Period	$	1,942,051	$	892		$	40,373		$	130,709	$	1,919,537		$	4,033,562
Elimination of investments attributable to consolidation of VIEs	—		—			—			—		(14,620		)	(14,620		)
Fees	—		—			—			61,728		—			61,728
Purchases	—		—			871			—		265,063			265,934
Sale of investments/Distributions	—		(6		)	(78		)	—		(181,435		)	(181,519		)
Net realized losses	—		—			—			—		(954		)	(954		)
Changes in net unrealized gains	205,364		28			18,158			14,039		17,535			255,124
Transfer into Level III	—		—			—			—		141,353			141,353
Transfer out of Level III	—		(914		)	—			—		(309,028		)	(309,942		)
Balance, End of Period	$	2,147,415	$	—		$	59,324		$	206,476	$	1,837,451		$	4,250,666
Change in net unrealized gains included in Net Gains from Investment Activities related to investments still held at reporting date	$	205,364	$	28		$	18,158		$	—	$	—		$	223,550
Change in net unrealized gains included in Net Gains from Investment Activities of Consolidated VIEs related to investments still held at reporting date	—		—			—			—		14,491			14,491
Change in net unrealized gains included in Other Income, net related to assets still held at reporting date	—		—			—			14,039		—			14,039



	For the Three Months Ended March 31, 2013
	Investment in AAA Investments			Investments held by Apollo Senior Loan Fund			Investments in HFA and Other			Athene and AAA Services Derivatives		Investments of Consolidated VIEs			Total
Balance, Beginning of Period	$	1,666,448		$	590		$	50,311		$	2,126	$	1,643,465		$	3,362,940
Elimination of investments attributable to consolidation of VIEs	—			—			—			—		(3,902		)	(3,902		)
Fees	—			—			—			22,001		—			22,001
Purchases	—			22			1,435			—		384,161			385,618
Sale of investments/Distributions	(62,189		)	—			(902		)	—		(186,861		)	(249,952		)
Net realized losses	—			—			—			—		(4,442		)	(4,442		)
Changes in net unrealized gains (losses)	47,770			9			4,563			—		(1,353		)	50,989
Transfer into Level III	—			—			—			—		272,593			272,593
Transfer out of Level III	—			(621		)	—			—		(337,673		)	(338,294		)
Balance, End of Period	$	1,652,029		$	—		$	55,407		$	24,127	$	1,765,988		$	3,497,551
Change in net unrealized gains included in Net Gains from Investment Activities related to investments still held at reporting date	$	47,770		$	9		$	4,563		$	—	$	—		$	52,342
Change in net unrealized losses included in Net Gains from Investment Activities of Consolidated VIEs related to investments still held at reporting date	—			—			—			—		(8,655		)	(8,655		)

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



	For the Three Months Ended March 31,
	2014										2013
	Debt of Consolidated VIEs			Contingent Consideration Obligations				Total			Debt of Consolidated VIEs			Contingent Consideration Obligations				Total
Balance, Beginning of Period	$	9,994,147		$	135,511			$	10,129,658		$	11,834,955		$	142,219			$	11,977,174
Elimination of debt attributable to consolidation of VIEs	(15,394		)	—				(15,394		)	(3,937		)	—				(3,937		)
Additions	750,966			—				750,966			332,250			—				332,250
Payments	(558,608		)	(14,558		)		(573,166		)	(911,775		)	(24,419		)		(936,194		)
Net realized (gains) losses	(357		)	—				(357		)	7,603			—				7,603
Changes in net unrealized losses / fair value	5,633			5,520			⁽¹⁾	11,153			88,236			13,431			⁽¹⁾	101,667
Transfers into Level III	316,252			—				316,252			—			—				—
Transfers out of Level III	(70,319		)	—				(70,319		)	—			—				—
Balance, End of Period	$	10,422,320		$	126,473			$	10,548,793		$	11,347,332		$	131,231			$	11,478,563
Change in net unrealized losses included in Net Gains from Investment Activities of consolidated VIEs related to liabilities still held at reporting date	$	4,996		$	—			$	4,996		$	87,186		$	—			$	87,186


(1)	Changes in fair value of contingent consideration obligations are recorded in profit sharing expense in the condensed consolidated statements of operations.

The following tables summarize the quantitative inputs and assumptions used for financial assets and liabilities categorized in Level III of the fair value hierarchy as of March 31, 2014 and December 31, 2013:



	As of March 31, 2014
	Fair Value		Valuation Techniques	Unobservable Inputs	Ranges	Weighted Average
Financial Assets
Investments of Consolidated Apollo Funds:
AAA Investments⁽¹⁾	$	2,147,415	Net Asset Value	N/A	N/A	N/A
Investments in HFA and Other	59,324		Third Party Pricing⁽²⁾	N/A	N/A	N/A
Athene and AAA Services Derivatives	206,476		Transaction	Private Placement Price	$26.00	$26.00
Investments of Consolidated VIEs:
Bank Debt Term Loans	60,760		Other	N/A	N/A	N/A
Bank Debt Term Loans	22,270		Market Comparable Companies	Comparable Multiples	5.0x	5.0x
Stocks	6,103		Market Comparable Companies	Comparable Multiples	6.5x - 11.2x	8.0x
Corporate loans/ bonds	1,748,318		Third Party Pricing⁽²⁾	N/A	N/A	N/A
Total Investments of Consolidated VIEs	1,837,451
Total Financial Assets	$	4,250,666
Financial Liabilities
Liabilities of Consolidated VIEs:
Subordinated Notes	$	835,484	Discounted Cash Flow	Discount Rate	10.0% - 12.0%	11.1%
				Default Rate	1.0% - 1.5%	1.3%
				Recovery Rate	75.0%	75.0%
Senior Secured Notes	2,148,989		Discounted Cash Flow	Discount Rate	1.7% - 2.0%	1.8%
				Default Rate	2.0%	2.0%
				Recovery Rate	20.0% - 70.0%	65.0%
Senior Secured and Subordinated Notes	7,437,847		Third Party Pricing⁽²⁾	N/A	N/A	N/A
Total Liabilities of Consolidated VIEs	10,422,320
Contingent Consideration Obligation	126,473		Discounted Cash Flow	Discount Rate	10.5% - 18.5%	15.4%
Total Financial Liabilities	$	10,548,793


(1)	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:



	As of March 31, 2014
					% of Investment of AAA Investments
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:
Transaction	$	2,168,531		⁽³⁾	100	%
Total Investments	2,168,531				100	%
Other net liabilities⁽⁴⁾	(21,116		)
Total Net Assets	$	2,147,415


(2)	These securities are valued primarily using broker quotes.


(3)	Represents the investment by AAA Investments in Athene, which is valued using the price at which the Athene Holding shares were offered in the Athene Private Placement. The unobservable inputs and respective ranges used are the same as noted for the Athene and AAA Services Derivatives in the table above. See note 17 for discussion of the Athene Private Placement.

(4)

Balances include other assets, liabilities and general partner interests of AAA Investments. Balance at March 31, 2014 is primarily comprised of net assets allocated to the general partner of $122.6 million less $99.0 million in note receivable from an affiliate. Carrying values approximate fair value for other assets and liabilities. The note receivable from an affiliate is a Level III asset valued using the price at which the Athene Holding shares were offered in the Athene Private Placement. The unobservable inputs and respective ranges used are the same as noted for the Athene and AAA Services Derivatives in the table above.



	As of December 31, 2013
	Fair Value		Valuation Techniques	Unobservable Inputs	Ranges	Weighted Average
Financial Assets
Investments of Consolidated Apollo Funds:
AAA Investments⁽¹⁾	$	1,942,051	Net Asset Value	N/A	N/A	N/A
Apollo Senior Loan Fund	892		Third Party Pricing⁽²⁾	N/A	N/A	N/A
Investments in HFA and Other	40,373		Third Party Pricing⁽²⁾	N/A	N/A	N/A
Athene and AAA Services Derivatives	130,709		Discounted Cash Flows	Discount Rate	15.0%	15.0%
Athene and AAA Services Derivatives	130,709		Discounted Cash Flows	Implied Multiple	1.1x	1.1x
Investments of Consolidated VIEs:
Bank Debt Term Loans	18,467		Other	N/A	N/A	N/A
Stocks	7,938		Market Comparable Companies	Comparable Multiples	6.0x - 9.5x	7.9x
Corporate loans/ bonds	1,893,132		Third Party Pricing⁽²⁾	N/A	N/A	N/A
Total Investments of Consolidated VIEs	1,919,537
Total Financial Assets	$	4,033,562
Financial Liabilities
Liabilities of Consolidated VIEs:
Subordinated Notes	$	835,149	Discounted Cash Flow	Discount Rate	10.0% - 12.0%	10.8%
				Default Rate	1.0% - 1.5%	1.3%
				Recovery Rate	75.0%	75.0%
Senior Secured Notes	2,132,576		Discounted Cash Flow	Discount Rate	1.9% - 2.2%	2.0%
				Default Rate	2.0%	2.0%
				Recovery Rate	30.0% - 70.0%	65.2%
Senior Secured and Subordinated Notes	7,026,422		Third Party Pricing⁽²⁾	N/A	N/A	N/A
Total Liabilities of Consolidated VIEs	9,994,147
Contingent Consideration Obligation	135,511		Discounted Cash Flow	Discount Rate	10.5% - 18.5%	15.3%
Total Financial Liabilities	$	10,129,658


(1)	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:



	As of December 31, 2013
					% of Investment of AAA Investments
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	$	1,950,010		⁽³⁾	100	%
Total Investments	1,950,010				100	%
Other net liabilities⁽⁴⁾	(7,959		)
Total Net Assets	$	1,942,051


(2)	These securities are valued primarily using broker quotes.


(3)	Represents the investment by AAA Investments in Athene, which is valued using a discounted cash flow model. The unobservable inputs and respective ranges used in the discounted cash flow model are the same as noted for the Athene and AAA Services Derivatives in the table above.

(4)

Balances include other assets, liabilities and general partner interests of AAA Investments. Balance at December 31, 2013 is primarily comprised of net assets allocated to the general partner of $102.1 million less $89.0 million in note receivable from an affiliate. Carrying values approximate fair value for other assets and liabilities (except for the note receivable from an affiliate) and, accordingly, extended valuation procedures are not required. The note receivable from an affiliate is a Level III asset valued using a discounted cash flow model. The unobservable inputs and respective ranges used in the discounted cash flow model are the same as noted for the Athene and AAA Services Derivatives in the table above.

Athene and AAA Services Derivatives

As of March 31, 2014, the significant unobservable input used in the fair value measurement of the Athene Services Derivative and the AAA Services Derivative (each as defined in note 13) is the price at which the Athene Holding shares were offered in the Athene Private Placement which closed on April 4, 2014. The shares in the private placement offering were offered at $26 per share. Given the proximity to the March 31, 2014 financial statement date, the $26 per share price was considered to be the best measure of fair value and was therefore utilized for valuing the Athene investment at March 31, 2014.

Consolidated VIEs

Investments

The significant unobservable inputs used in the fair value measurement of the bank debt term loans and stocks include the discount rate applied and the multiples applied in the valuation models. These unobservable inputs in isolation can cause significant increases or decreases in fair value. Specifically, when a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount rate can significantly lower the fair value of an investment; conversely decreases in the discount rate can significantly increase the fair value of an investment. The discount rate is determined based on the market rates an investor would expect for a similar investment with similar risks. When a comparable multiple model is used to determine fair value, the comparable multiples are generally multiplied by the underlying companies earnings before interest, taxes, depreciation and amortization ("EBITDA") to establish the total enterprise value of the company. The comparable multiple is determined based on the implied trading multiple of public industry peers.

Liabilities

The significant unobservable inputs used in the fair value measurement of the subordinated and senior secured notes include the discount rate applied in the valuation models, default and recovery rates applied in the valuation models. These inputs in isolation can cause significant increases or decreases in fair value. Specifically, when a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount rate can significantly lower the fair value of subordinated and senior secured notes; conversely a decrease in the discount rate can significantly increase the fair value of subordinated and senior secured notes. The discount rate is determined based on the market rates an investor would expect for similar subordinated and senior secured notes with similar risks.

Contingent Consideration Obligations

The significant unobservable input used in the fair value measurement of the contingent consideration obligations is the discount rate applied in the valuation models. This input in isolation can cause significant increases or decreases in fair value. Specifically, when a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount rate can significantly lower the fair value of the contingent consideration obligations; conversely a decrease in the discount rate can significantly increase the fair value of the contingent consideration obligations. The discount rate was based on the weighted average cost of capital for the Company. See note 14 for further discussion of the contingent consideration obligations.