Good afternoon, everyone, and welcome. Appreciate everyone who is able to join us in the room. Of course, we'd like to welcome many more who are tuning into the live stream today. I am Noah Gunn, and I have the pleasure of leading the firm's investor relations efforts. Today, we're excited to bring you Retirement Services Business Update 2025. While some of our content does pick up on tactical business discussions that we've had this year, at its core, we are continuing a longer-term story here, one of tremendous success, profitable growth, and value creation delivered consistently over time. Hosting this session today speaks to our ongoing commitment to educate, provide transparency, and offer leading disclosure across many areas that we know the market is focused on. Of course, as we get into it, we encourage you to review our forward-looking statements and reconciliations.
In terms of agenda, we have structured this afternoon's discussion to have three core segments. Marc will deliver a message on our thoughtful approach to the business. Grant will provide an update hitting on Athene's growth capabilities and competitive advantages. We will have a financial update segment with Martin and Athene CFO, L.J., who I would add has a longer and wonderfully sounding name in French. If I had a semblance of an accent, I would pronounce it for you. We will then close out with some Q&A. One final note, if you open the deck that we posted just before we went live, it is about 100 pages. If you immediately felt tired, I would caution you that about half of it is an appendix that we prepared as a takeaway.
We had some fun doing some myth-busting, and I think you'll find a lot of the resources that are in there very insightful. With that, please join me in welcoming Marc.
Thanks, Noah, and thank you to everyone who's come out today, as well as the hundreds who seem to be interested. Forgive me, I've been losing my voice having been in Asia all week. I thought this would be a good day for us to level set. I was reading before I got up here a quote on the madness of crowds that we tend to go mad in herds, but only regain our sanity one by one. Let's have this be the start of that process, including for many people who have covered us, followed us, been engaged with us for a long time. A lot of just basic anchoring that I think needs to be done in an environment that is somewhat speculative. Okay, how do we do this? Why did we get into this business? What do we think of this business?
At the end of the day, you do not get to be large in any market unless you are serving a societal good. We are large, and we are serving a societal good. Everywhere in the world, not just in the U.S., but everywhere you look, we are short guaranteed retirement income. Our market is not going to peak until 2050, and we are going to see a 40% increase in the number of people over 65 between now and then. This should not be a surprise because we are already seeing it. Basically, the trend is playing out. We are up five plus times in 13 years. I would expect with some adjustments for interest rates, obviously things are more attractive when rates are higher. I would expect this to be upward and to the right. This, again, is not a surprise. We have been doing this a long time.
We were very, very fortunate to have gotten to scale and to have built the origination machinery before anyone even thought about retirement services and linking to asset management. I'll go back through what I think is required to succeed in this business. Number one, you have to be able to originate assets, and they have to be investment-grade assets. There is a separate set of discussions. Originating below investment-grade assets is actually not capital productive for an insurance company. The capital charge versus the excess spread you get just does not make any sense. Second, it is just not smart. The ability to originate investment-grade assets is what you need. Second is you need a source of stable liabilities. Almost every liability in this industry is newly issued with a surrender charge or a market value adjustment or locked-in funding.
When you originate the liability yourself, you get the benefit of that. When you are forced to buy these liabilities in the secondary market, you are buying degraded surrender charge, degraded market value adjustments, and worst of all, you are forced to deploy assets at one point in time. That means if you do not have massive warehousing, you are going to underperform asset targets that are available. Three is you need capital. Four, OPEX. In a 120-130 basis point spread business, the difference between a good and a bad operator in OPEX can be 30 or 40 basis points. A massive amount. Finally, good management. This is a business that requires management. You are forced to make decisions. You are forced to make market calls. You are forced to articulate your risk tolerance. It is not just put the capital in, match the assets and liabilities.
Requires constant adjustment and constant refinement. What's going on in the marketplace? Basically, spread, public fixed income has been declining. It's not just public IG. In this case, I looked at BBB spreads. The CLO market, in this case, the ACLO market, we've seen declining spreads as a trend other than for a little bit of volatility around COVID for a long time. We're also seeing declining spreads in RMBS. Recall that CLO and RMBS were for us the major asset classes that we pulled excess spread as we were growing. We should not think as a group, and we do not believe that we are going to get mean reversion.
Anyone who's out there talking about how this is a low period, low spread, and we're going to do better next year, I think is missing a much, much bigger trend that's going on in the business and in the asset management business. What's happened is we have shown the market that you need these assets. You need to consider things that are private. And I consider CLO paper private. I consider RMBS private. You need to be able to originate investment-grade assets. When people talk about origination, we almost need to refine what they mean by origination. There's easy business. Originating a CLO is showing up and offering a price. Public corporates showing up and offering a price. RMBS, a little bit more work, but showing up and offer a price.
Most people, most of the people in our industry, when they are talking about origination, they are talking about those three buckets on the left. Spread is declining and tightening in every one of those markets. On the right side, you have what I call as proprietary origination. Private investment grade, so-called financing the global industrial renaissance. Basically, 50- 150 basis points better risk. Asset-backed finance off our proprietary origination platforms. More, again, fund finance. We have spent more than $12 billion, nearly 15 years, and have 5,000 people doing this. No one else has done this. No one else is close to it. No one else can originate in size. We get to fish in the largest pool. We get to do the easy business, and we do some amount of easy business. We can get spread from the hard business, which only belongs to us.
Now, we do not just keep 100% of the hard business for ourselves because we are a diversified owner of credit, even at Athene. In our third-party credit business, we syndicate this. You would not be surprised, or maybe you are surprised, there are another 20 insurance companies, all of whom you would consider competitors of ours, who are buyers of pieces of this harder business. We do not think this changes the competitive dynamic because although we are buying at the same time, at the same price, and in the same way, we are generally taking 30% of everything, and they are taking 3-5% of everything. I like that. I like the risks syndicated throughout the insurance industry. I like that regulators are seeing it not just from us, but from our peers. I like the validation of third-party pricing.
I like the tenacity of our teams to have to serve third parties and to build origination and rating systems to serve third parties. I've said this again, but why don't we think spreads are going to return? Fundamentally, we started in this industry of private credit, private capital 40 years ago. Forty years ago, there was one buyer for private assets, the institutional alternative bucket. That was the only buyer. Then we got a second buyer called individuals. Then we got a third buyer called the insurance industry. Then we got a fourth buyer, traditional asset managers. A fifth buyer, the debt and equity buckets of our institutional clients are now open to private assets, particularly as they move to total portfolio approach. Now I believe we will get a sixth buyer in 401(k). We are seeing immense opening of demand for private assets.
The notion that being private is somehow going, the pressure is going to let up, I do not think it is the case. I think we have to appreciate that origination of private assets is what has value, particularly origination of private assets that have excess spread. For the insurance industry, origination of investment-grade private assets that have excess spread. Moreover, if you are Apollo, not just with your Athene hat on, if origination is what is in short supply, if origination is going to be in demand, if our growth is ultimately limited by our capacity to originate assets, I believe the intelligent thing to do is to own more of the economics from every asset that we originate. Not only do we earn a full fee everywhere, but with a large percentage of the assets, we also own 100% of the ups. That is Athene.
For another percentage of the assets, we own 33% of the ups or 30% of the ups. That's ADIP. For an even larger chunk of the assets, we sell it just fee released. I believe this enables us to double our profitability without the same work that a fee-only manager would have to do and without taking undue risk. Because although we have to put up capital, investors actually pay us for the right to put up two-thirds of the capital side by side with us. Think about that. It's so bad to put up capital that people pay us for that right, and we've earned 15% return on capital for nearly 17 years. This is the environment we're in. Private credit, particularly as it relates to insurance companies, pension funds, banks, this is a $40 trillion market.
All of the money, almost all of the industry is private. Everything on a bank balance sheet is private. Most of what we do is private investment grade. 100% of the press is focused on that little sliver at the bottom called levered lending. The problem is one of nomenclature. The media refers to the entirety of this stack as private credit and makes no distinction between the $38 trillion that is no different than public investment grade or what's on a bank balance sheet and the $2 trillion of levered lending, which is a below investment grade activity. What we've seen, does anyone actually know what they're talking about? Go through these headlines. Private credit breaks. Insurers will fall under the microscope. US insurers are binging on private credit. The hazard lurking in your retirement fund. The IMF is raising their alarm. I don't know.
My eyesight is not as good as it once was, but it seems that's 0.35%. The rest of the balance sheet is invested in investment-grade debt, or as you know, we have 5% in alternatives. There's almost nothing about private credit that is on the balance sheet of Athene, is on the balance sheet, quite frankly, of almost all insurers and what the press is talking about in private credit. This is about myths and reality, and I think it's worth to go through these. People talk about private credit not being rated. Investment-grade private credit is almost always rated. It's opaque. It's not opaque. It's actually totally transparent. You actually get borrower-level financials and real due diligence. It's not priced. Nah, it's priced every single day. For the State Street ETF, there's a price every single day on every credit.
Elsewhere at Apollo, there's $6 billion of trading that takes place in private IG. If we sent you a trading run for private IG and public IG, you would not be able to tell the difference in market depth, market pricing, market anything. Not tradable versus strong trading volumes. Not regulated. It's the same regulation as there is for public IG. There's no difference other than an added level of scrutiny on a regulatory balance sheet where you also have the insurance regulatory oversight. Far from being a systemic risk, rather than concentrating credit on the balance sheet of government-guaranteed, short-dated, funded, levered institutions, you are now democratizing credit and the need for credit throughout the financial system. As I said, I think people have really just lost their minds, and the headlines get more and more hysterical and have almost nothing to do with the substance.
This is the comparison. I'm not negative on public investment grade, but public investment grade, limited covenants, limited access to management, limited direct diligence, and you are essentially buying a portfolio on rating. All of the things that people say they hate, you correct for in private. You're doing direct work. You have total access to management. You're covenanting what you need to covenant. Yes, you still have reliance on ratings because almost everything is rated. Another fact that gets in people's way. Almost all the losses in the insurance industry come from corporates and real estate. This is not just us. This is the U.S. insurance industry. These are three years, five years, and ten years. You ask why. What's happened over time is we have seen, particularly since 2000, increased pace of change.
The problem with individual credits, they are subjected to individual rates of change. Think of what happens when regulations change, when consumer tastes change, when energy prices change, when demand for travel changes. We have seen an increased incidence of single-issuer corporate bankruptcies at the investment-grade level, whereas secured, negotiated, asset-by-asset, or structured products just provide different levels of protection and different levels of diversification and have mostly protected the industry versus public corporates and real estate. It almost turns it on its head. What we think is risky is actually less risky, and what we think is safe actually has produced almost all the losses in the industry. What we have focused on is what we believe.
We believe our entire industry, not just the insurance industry, but the whole private asset industry, ultimately is limited by our capacity to produce assets that make sense, excess return per unit of risk. We have originated $273 billion of assets in the latest 12 months. $190 billion of those assets are A-rated investment grade at T280. We have 16 platforms. We originate, like everyone else does, through our core credit business, where we get RMBS and CLO paper. We also individually originate high-grade capital solutions for investment-grade borrowers, such as the ones on the page. We originate through bank partnerships. We have been talking about origination for as long as I can remember. The industry is finally coming around to understand that we are, at the end of the day, originators of risk.
It is our job to produce excess return per unit of risk, but if we fail to originate, we can't grow, or we shouldn't grow is probably the best way to say it. We are unique in the insurance industry in that Athene and Apollo together have a relationship where Athene can see on a daily, weekly, and monthly basis what the pipeline is. They know if they're coming into a strong origination pipeline or if there's a weak origination pipeline. If there's a strong origination pipeline, they can almost instantaneously step on the gas to produce liabilities. If there's a weak origination pipeline, which happens sometimes seasonally, they can back off. We do not run the business on autopilot. We run the business completely connected of producing spread by matching investment-grade assets with liabilities that have surrender charge protection or market value or protection or contractual maturities.
We're writing profitable new business, and we're growing volumes. You can see the step up over time and the underwritten IRRs on new business at pricing. It is not all that different today than it's been at any time in our past. Some quarters are better. Some quarters are worse. No, it is not back to the period of time around COVID where the business was just amazing. What we're seeing and what we're seeing in our business is the headwinds that have hit us over 2024 and 2025 really are beginning to dissipate, and the strong pipeline of new business, which has been growing and is profitable, is starting to outweigh the headwinds. This is why we have a pivot point, and you're going to hear a lot more about this from L.J. and from Martin. We faced over 2024 and 2025 three really significant headwinds.
One was interest rates. The second was asset prepayment. Just to give you a sense of scale, we budgeted over the last 18 months $23 billion of repayments at 6.1%. We got $30 billion of repayments at 6.5%. When spreads tighten, everything that is prepayable prepays. The good news about that is there's very little left to prepay that is not out of it or in its locked period of time. This is something that we have to watch across the industry that we do budget for, but the spread tightening, we're talking about a generational tights in CLO paper. The third is this roll-off of exceptionally profitable business when rates were less than 2%. You can see just how much business rolled off in each of the years, and some years were even more profitable than others, particularly the roll-off of the COVID business. What do we expect?
We expect what we said on our call. We expect to produce circa $880 million of spread-related earnings in Q4. We expect to grow our spread-related earnings roughly 10% in 2026, and we expect to grow roughly 10% on average through 2029. This is a slide about management, and this is a slide about risk and something that I think it's hard to see from the outside. When spreads start tightening, when risk gets dialed up, we had a choice in 2024 and 2025. We had a choice to take more risk and protect SRE. We had a choice to deliver the underwritten SRE or to act like a principal. We decided, and we always will, act like a principal.
We did a series of things, which Martin and L.J. will dimension in terms of cost, that if you own the business for the long term as opposed to any quarter, you just do. We have taken our cash and treasuries, $8 billion to $22 billion. LTV, low LTV mortgages, $4 billion- $17 billion. We have moved our CLOs up in credit quality. Every single one of these actions was SRE negative. In a spread tightening, risk-on environment, we take risk off. We play for the fat pitch. We want to make sure we have ample firepower, ample liquidity if we get a correction, or if we see a big sell-off just as a change in the risk mood. The time to take risk and the time to protect earnings is not when things are frothy, when we need to do it.
This is how we run the business, and this is why we have so much comfort in our ability to deliver. As Noah mentioned, you have 50 pages in the back, which we had a lot of fun doing, of market myths talking about opaque offshore capital, outsized credit risk, private ratings arbitrage, and the run on the insurer. All of this should be great fun to read for anyone who's really interested in answers to these topics. With that, Grant, it's all you.
Thanks, Marc. Good morning, everyone, or good afternoon. In my new role as CEO, one of the very first things that Marc said to me was, "Grant. Growth is not an option." I think I already understood that, but it was nice to get clear direction. I am here today to share why we're confident in the future of Athene.
Marc already highlighted the demographics. On top of the fact that we have an expanding amount of aging people, quite a lot of them are woefully underprepared for retirement. I get a lot of comments from people in the room and others about the competitive environment that we're operating in. There have always been strong competitors in every aspect of the business that Athene operates in, and yet we've put together the track record we have of profitable growth, and I think we'll be able to continue to do so. We'll talk some more about that. In all the things that we're doing in the markets that we're currently in and the new markets that we are entering now, we just have tremendous opportunity. We're spoiled for choice in the opportunities that we have to grow. You've seen this chart before.
We add to it every time we get together. Nobody in our industry can put together a similar graphic. It is driven by what you see on the right, which is market-leading origination channels. Various ways for us to originate liabilities are retail annuities, floor insurance, pension group annuities, funding agreements. We choose which business to write depending on the relative economics in those various platforms, but we have always found a way to continue to originate more while meeting our returns. We have a self-funded, a stable-funded model. Our assets manage our liabilities. These are persistent, predictable, stable liabilities, average life about seven years, 89% either with set maturities or protected by surrender charges and market value adjustments. We are not in any of the businesses that have caused heartburn for our peers, right? We are not in variable annuities. We are not in universal life with secondary guarantees.
We're not in long-term care. The companies we acquired, we acquired after the great financial crisis. Everything was marked to market. Since then, we've been originating in a relatively low interest rate environment. You won't find a cleaner liability structure in our industry than Athene. We talk about our right to win. The advantages that we have are really hard to replicate. Marc talked about the asset origination machine, differentiated assets at better returns per unit of risk, which is validated at Athene by our consistently lower impairments over our entire operating life. We think we have about, and that's we think 30-40 basis points better assets, roughly 35 basis points of lower operating costs. I met with a group of investors last week, and I made a statement that one of them found shocking.
We have fewer employees today at Athene than Aviva USA had when we acquired them in late 2012. At the time we acquired them, the combined enterprise was originating less than $3 billion. In the last 12 months, Athene has originated $85 billion. Nobody comes close to the efficiency that we operate with. When you take one and two together, it is pricing power. We have the ability to make our products terribly compelling to the consumer. We do not put it all in there. We take part of it and bring it to the bottom line and earn superior returns. On top of that, we have great liability creativity and a liability distribution platform that we do not think anybody can match.
All of this in the context of number four, what we call a fortress balance sheet, A1, A-plus, A-plus, A-plus ratings, $35 billion of statutory capital, lower leverage than our peers, access to a large equity sidecar, operating in a heavily regulated environment to the highest standards with the most transparency of anyone in the industry. Lastly, we put that all together with a strong performance culture. We play to win. We plan to win, and we execute accordingly. I think it's a powerful combination that makes us an incredibly tough competitor. Marc talked about the origination machine that Apollo has that Athene benefits from. Athene has created a liability machine to utilize all those great assets. This compares Athene and the dark blue bars to some of the people that we compete against, number two in our industry in the average of three through five.
We dwarf all of our competitors. We're actually originating more on an annual basis than the accumulated balance sheet of quite a few of the competitors that we compete against. Everything we do has to meet our pricing criteria. We underwrite the mid-teens, unlevered returns. I think across time, we've shown amazing discipline to pull back from business when it's not there. The top example is you can see that really for almost two years, we didn't issue at all in the FABN market because we couldn't earn our returns. There have been periods of time when we've seen in the MIGA market, the multi-year guaranteed annuity market, pricing just get too tight to make sense for us. We stopped writing business there.
Today, we see incredibly aggressive pricing in the pension group annuity business, deals priced to mid to high single digits. We have been on 34 transactions in the last couple of years and maintained our pricing discipline. You can also see on this chart that there are periods where there are spikes up. When we see great market opportunities, we also lean in and try to capture them. Despite not reaching for business, we consistently find ways to grow and meet our return criteria. We write great business. That gives us access to third-party capital. We did ADIP 1 in 2019, raised $3.3 billion. It has had a great track record. We have returned 70% of the capital, had a very different asset mix, as you can see in the commentary section versus what we have put into ACRA 2.
That meant when we came around to raise ACRA 2 in 2024, we were able to raise $6 billion. What this allows us to do is figure out how much we want to keep on balance sheet to Marc's point, how much to share with ACRA, and what types of liabilities. We can move quota shares up and down. We can talk about different kinds of liabilities that make sense at different points in time. I think our track record here will put us in great position to raise ACRA 3, but we still have $3 billion of undrawn capital inside of ADIP 2. I should say the last thing there, we are totally aligned in that Athene is about a third of the capital in ACRA, ADIP, ACRA. Sorry, I'm mixing the two, but I think most of you know what that means.
We're aligned because we are the biggest shareholder within it, and that plays well. They are investing alongside of Apollo and Athene. There's great tailwinds in our business. We've talked about some of them. I'll go quickly on this slide. I think one of the things I'd point out here is I think we have an ability to expand the size of our market. When you think about the money market and CD markets, there's $10 trillion there. Total size of the annuity market is a fraction of that. Yet, if you compare CDs to MIGAs, to the multi-year guaranteed annuities, the MIGA offers higher rate, better liquidity, and tax deferral. Athene and the industry as a whole, we need to convert that. We need to do a better job of telling our story. What are the tailwinds for Athene specifically?
We've built institutional distribution at Athene over the last decade for our retail annuity business, and we're now on 20 of the top 30 platforms. Ten years ago, that number was zero. We have about 18% of what goes through annuity sales in those institutional channels, but we think we can capture a lot more. They are relatively new relationships, and over time, we can get more shelf space, and we can activate more people inside of those distributors to sell our products. For the 10 platforms that we're not on, they sell more than $30 billion of annuities a year. There is still an existing new distribution opportunity for us, and we're looking to go after that as well. In the middle part, we are 10% of the fixed annuity market. We are the largest player.
I would start by saying, again, that number was zero when we entered the retail annuity market in 2011. We have grown to be the largest. We have not capped out what we can do there. You look at RILA, which goes through those newer distribution institutional, primarily broker-dealer relationships. We think there is significant upside for us in that marketplace, which is a fast-growing marketplace. The litigation headwinds for us in PGA are subsiding, and sooner or later, we think that the pricing ought to become more rational. That would be upside for us. We are expecting nothing in the near term. We have talked before this year about entering new markets like stable value and structured settlements. We are ahead of plan there. We are really pleased with how that is going. We bought an entity called ARS. We have renamed it Viterra. It is our access point for guaranteed income into 401(k).
There's a relatively small amount in our plan from new markets, so we think there's some significant upside to outperforming our expectations. Just wanted to delve in a little bit more in retail. It's a core channel for us. Ten years ago, it was 100% IMOs. I think the transformation is incredibly compelling. We've gone from that to where we are today, where institutional distribution is close to 80% of our total. The IMOs are still really important. If you look at 2015, IMO distribution was $3 billion. It's now down to just 22%, but that 22% year to date represents $6 billion of sales. It just shows the scale of our business. We now have over 200 unique distributors, over 150,000 agents registered to sell our product. We think we have the market-leading technology platform that aids customer service and breeds agent loyalty.
I think probably the most stunning figure on this page is that in 2021, the top five institutional distributors that we had sold $1 billion of our product. Last year, those same top five sold $17 billion. Tremendous growth. Just a case study on one of those top five. We only got onto that platform in 2022. Not uncommonly, they started with three products. In that partial year, we ranked as the third largest carrier on that platform. Every year since, we've been able to be the number one carrier on the platform. We've been adding more products, and our volumes from 2022- 2025 have gone from $1.5 billion to an expected $5 billion this year. These largest distributors are incredibly powerful and are really driving the change that is going on in the annuity industry. I could come up with a lot more examples like this.
The pattern is the same. When Athene gets onto a new large platform, we are incredibly successful, and the speed of uptake is also quite fast. We're big in the funding agreement space. We have four channels. In the funding agreement back note space, maybe one that you're most familiar with, we've sold $13.5 billion so far this year. Yet, we've sold 20% less in the core dollar market. We've done a lot more offshore than we have in the past, and we've done that intentionally to try to keep pressure off our spreads in the dollar market. FHLB, I think you're familiar with that channel as well. Totally aligned with the FHLB's mission of supporting residential real estate in the U.S. Athene actually created the Faber market shown here as the dark blue.
As in reaction to spreads blowing out in the time of COVID, we lost access to the FABN market. These deals are basically structured one-on-one with large banks, use collateral, generally structured credit, and have been incredibly successful for us as a funding source, now a consistent funding source with more and more banks involved and deal sizes having grown quite a bit. The most recent channel we add is what we call direct FAs, where Athene participates by being a funding agreement provider inside of a municipal energy prepay transaction. It has given us access to a new investor base, and they tend to have longer maturities, eight, nine, 10 years. I should say I am going to go back. Two things I would point out. Some of the questions we get are, do we have any liquidity issues?
We make no assumptions that we will refinance a funding agreement back note at its maturity. They will be paid off out of asset cash flows. I think if you go back to the prior slide, we've clearly demonstrated that by staying out of the market for almost two years. The last thing I would say, we make no use of the funding agreement commercial paper market. We are issuing term funding agreements, and we are assuming they self-liquidate out of asset cash flows. Our core business shown here in the blue on the left will continue to be a major part of our growth over the next several years. New and adjacent markets are going to play an increasing role. It is forecast to be $5 billion of our volumes in 2026. Significant uptick on this year will be led by stable value and structured settlements.
We think we'll continue to see additional expansion in Asia-Pacific. We've already done $15 billion of transactions there to date. I mentioned we've entered the DC space with ARS, now renamed Viterra. That is the largest new market opportunity, the most difficult to negotiate the ecosystem, but a $12 trillion target market and one that we're focused on. Proud of the track record that Athene has established to date, but the entire management team thinks that the best is yet to come for Athene. With that, I'll turn it over to Martin and L.J.
Thanks. Good afternoon, everyone. Great to see you. It's been left to the Australian to introduce the Frenchman. This is Louis-Jacques. Thank you.
Thank you. I'm sure you've heard all variations of. Goes by L.J., thankfully. L.J. joined, I saw him almost four years ago.
Actually, he was Chief Accounting Officer for three years after the merger. He sat at the group and then took on the Athene CFO role earlier this year. Moved out to the West Coast. Any given day, he's in Los Angeles or Des Moines, occasionally Bermuda. Teenage kids, high school, short notice, seamless transition. Delighted to have L.J. in that role. We will transition to the financial components. I'll frame it, and then L.J. will add some further dimension to it. If you think back to Investor Day a year ago, we are really being very consistent with the messages that we provided then. We're underscoring that. We're expanding some of the financial intuition around the numbers, and we're addressing spread. Spread is a newer focus point, and we're addressing that as a newer topic today. We're very confident in the growth of the business.
I think Marc said it. If at times we will have periods of lower than 10%, you should expect that we'll have times of more than 10% growth. 10% is the average over time. 10% is what we expect for 2026. You will see that the spreads on the business, whether that's looking at new business spreads or blended spreads across the business, have been very durable across time. There are certain points in the cycle where there are transitory impacts to the three dynamics that Marc mentioned. Through cycle, the structural advantages that we have, we think are really powerful and get to that 10% growth rate. Finally, we'll address Hulker Capital and the benefits.
I think even more convinced today that the benefits of the combined firm are massive, and it's the owning economics in different parts of the value chain that contributes to multiple forms of value creation. Grant covered growth. Growth is obviously very important. We are, despite the competition, despite tight spreads, nothing's changed about the top-line growth of the company. We had said a year ago, expect $85 billion on average over the five years. 70 would become 100. We are looking ahead to next year. We expect around $85 billion of growth. In year two of five, we'll hit the average. Outflows remain highly predictable. We've never been surprised by outflows, and we'll dig into that a bit more because it's really important. You should assume that ADIP continues to support 25% of the top-line growth of the business as a base planning assumption.
That's what we model. All of this contributes to get to a low teens growth rate in assets. When you run that through the impact of new business coming in, existing business rolling off, you get to the 10% SRE growth rate net of the ADIP contribution. We are fortunate to have a business that has a seven-year weighted average life. When you look at, as we're looking at here, you look at the transition point from 2025 earnings to what we expect for 2026, the $3.8 billion sort of ending anchor point. The decline here is a combination of runoff of the business, very modelable, and that's around 11%, which is very consistent with what we've seen in the past, and a continued tapering of the headwinds that we're seeing this year.
There is a prior year impact and a current year impact to each of this. You need to look at this on an in-year impact to construct the model. That is how we build our models. Then we look at next year, and we look at where we expect to write business at the spreads that we expect to write it in, in the channels we expect to write the business in, net of the upfront costs, and so on. You get the impact of new business being written next year, plus the benefit of business that we know we are walking into next year with having been written this year and annualizing into a four-year rate for next year. It is quite similar to the asset manager that way.
We know walking into the year that a lot of the earnings are in the ground, and we're annualizing the benefit of what was done last year. That is how we construct our models. The balance sheet is really straightforward. Nothing has changed about this. I think you've seen this slide on multiple occasions before. 95% fixed income, 5% alts. Of the 95% fixed income, 97%-98% is investment grade. $35 billion of statutory capital, which Grant touched on. ALM matched across the board. This gives us a very predictable pattern of SRE dollar emergence over time. We can construct going forward by quarter by year how we expect the SRE to manifest itself in or to emerge in SRE earnings over time. I'll talk more about the liability side in a minute, as I suggested.
On the asset side, assets are either fixed maturity, sort of bullet securities, which have a known and fixed maturity date. Obviously, it is a given. Or they are refinanceable or prepayable. We model those at tight spreads, which we are seeing today. We model assets that are callable or by the borrower, we assume will be called away at the first call date. We are not subject to, if anything, we are subject to extension risk, which will benefit the earnings profile. We are not subject to further prepayment risk. We stress prepayment risk. We stress the securities that drive refinances of CLO assets. That is all part of the work that we do to model earnings. Today's projections reflect today's spreads, first call dates in a world where spreads are tight and close to all-time tights up and down different asset classes.
On the liability side, we show here a 10-year history. We report this quarterly, as you know. These are the annualized runoff numbers on the liability side of the balance sheet every quarter for 10 years. It is a tight range. Where you see it is not a straight line, where you see deviations and what explains that, it is maturity-driven or modelable behavior in each of those instances. Or said differently, the unplanned experience on liability outflows is very, very small. You can see that number. We publish it every quarter. We actually break that down and show the line. You can go back in time and look at what the unplanned number is. It is not zero, but it is a very small and pretty static number.
We believe we're the only company in the space that produces a forecast and then reports against that. We plan to continue doing that. We have included what we expect the runoff to be in 2026 in the projections that we've outlined. It's about 11%. It's a consistent trend, nothing different from what we've been seeing in the past few years. We'll publish the quarterly view of that early in the new year. Let's turn to new business. New business is very simply asset growth at a net spread. It's a function of the two combined. We think about it in terms of product spread, so at the margin products, which Grant just walked through, and then overall spread, which combines the benefit of earnings on capital, deducts operating costs and financing costs, and so on.
How can this vary from any one period to the next? This goes back to a slide that Marc used. Competition in the marketplace and pricing behavior. Where we choose, which products we choose to lean into or not in any period of time. There is a trade-off there between earnings and capital. Higher earnings tends to come with it, higher capital. We are always optimizing the two to create return on capital. In any one year, you have timing. You can do more business or less business in any one period of time. That has an impact, obviously, on that quarter and the impact going into the following year. It is quite predictable. It is quite steady. Just focus on the 1.3% number as the new business number.
Over time, you can see, again, going back 10 years, you can see the quarterly new pricing spreads by quarter. We have broken this down so that you can see the product spread, which is the dark blue, and then the all else, the interest on capital, OPEX, financing costs, which is all netted into that lighter blue column. Quite tight, but not a straight line. That just reflects how we write the business. We are responsive to what is happening in the marketplace, to competition, to pricing, to different products and channels. We will modulate what we write in response to that. This, up until now, certainly reflects current generation of products. It does not really reflect any meaningful benefit for what we think are the next generation of products that Grant walked through.
We do believe that that's upside to the plan as we look forward. That's new business. We look at all-in reported spreads over time. Not too surprisingly, I think you get a similar number. The average reported all-in net spread of all existing business plus new business in any one period averages that same number, 130 basis points. The deviations in that are attributed to what we've been calling transitory impacts. The COVID period of time, both pre and post, and the impacts that that's had on the spread performance over time. We'll unpack this more in a few minutes. For 2026, relative to the 10% SRE dollar earnings growth, we expect the spread to be in the range of 120-125 basis points. That reflects everything we currently know.
What we plan to write, at what spreads, the construction of the new business, the runoff of the old business, what assets we expect to pay down, prepay. It's all contained within those two guide numbers. I think also a useful way to think about this, and I'll tee this up for L.J. to unpack a bit more, is we think about the business as having a structural spread advantage. There is one massive secular benefit for the industry, which is the age of the population and the demand for product. Aging population, multi-decade dynamic, which will play to the industry's advantage over the next couple of decades. There are several very important, much more Apollo-specific structural spread drivers of earnings. One is our advantage in origination and cost structure.
Two is what we think is our ability, excuse me, to write and underwrite credit. That is foundation. That is durable. That is the 130 basis point anchor point over time. There are cyclical impacts. There are rates, which all three of these we have spoken about over the last year or two. There are rates. Certainly, the period pre and post-COVID and the impacts that that had on the up and on the down, timing, and asset prepayments and returns on the alts portfolio. Excuse me. Three is business mix. That is both on the existing portfolio rolling off as well as where we are choosing to write business in new channels for business coming on. We think of the bottom part of this as cyclical.
That is the reason for the deviation around the long term, 130 basis point created by the structural spread advantages that we have. What have we seen from the cyclical impacts? There is the three plus the countercyclical. We will just step through these one by one. L.J. will put some more dimension to it. This slide shows the year-over-year impact. What was the impact in any one year relative to the prior year as a result of each of these components? Rates, we obviously saw a massive backup in rates in 2022, 2023, which had a very pronounced impact on the earnings of the company. 500 basis points of short rate increases, followed by ultimately we are modeling nine cuts. We are more than halfway through that. The turnaround in that rate benefit became a headwind as we go through 2025.
This also reflects the timing of the hedges that we put in place. This is the net interest rate impact asset and liability side net of hedges. Prepays, Marc spoke a lot about this. We started to see some meaningful headwinds in 2024. That exacerbated in 2025. We expect that to roll off, particularly in the first half of next year and then to stabilize thereafter. Profitable COVID business. What is this? This is actually on both sides of the balance sheet. We are seeing, and we think we're also sort of at the peak of the headwinds on this dynamic, both spread-rich assets and cheap liabilities rolling off at the same time. That is a dynamic which is creating a headwind, which again will step down in severity next year and then neutralize itself in 2027. There are some other components.
L.J. will dig into it. Countercyclical is really foregoing current earnings by holding more cash and treasuries, just having more liquidity on the balance sheet, as well as the cost of hedging the existing portfolio. That is countercyclical. Management actions is managing the portfolio. It is making appropriate decisions in the asset side of the balance sheet based on current market conditions and repositioning existing assets. With that, I'll turn over to L.J..
Thank you. Let me say a few things here. First of all, I joined Athene eight months ago now. It has been an amazing journey. I joined an amazing team. More than anything else, I think the alignment with Apollo is really unprecedented. The symbiotic relationship is really harvesting the best of what we have. The growth story is fantastic. We are only getting started.
With that, let me overlay some of the numbers on the back of what Martin has just said, just trying to provide more data. The temporary factors that have influenced spread-related earnings over the past three years, you can see them one, two, and three on top of the table here. Interest rates, number one. Asset prepayment, which has accelerated over time, so certainly on tight credit spreads. To a lesser extent as well on RMBS or mortgages with rates lower. We discussed the exceptionally profitable COVID-era business, which also is now decaying and is coming effectively as a decay in our earning profile. All of those are transitory. We have said that. We see them as decaying. They will decay. In 2026, we will see less of that impacting the SRE profile. We will see none of that in 2027.
Against those, and I'll go into more of the details in the next slide, we put some de-risking actions. We put some countercyclical to the point that Martin conveyed a little earlier. Some numbers are on the page here. Really, starting with rates, rising interest rates you see in 2023 on the back of rates rising. Given the net exposure that we were carrying on floaters, as printed, it has generated $800 million plus of SRE in 2023. At the time, we were very intentional in retaining a large floating exposure. Obviously, at this point in the cycle, this is something that we manage down. I'll come back to that in a minute. Asset prepayment, number two, are temporary. They're really a temporary pressure. We had really elevated asset prepayment on the back of really tight credit spreads. We've seen historical tights recently.
I'll cover more of the details in a minute. Really, the third point being the COVID-era business. It was exceptionally profitable to start with because we were effectively harvesting cheap liability. On top of that, the rates pick up, and I'll go through an example in a minute, really increased further the yield accretion on those payoffs. Let me start with rates here. We said that at the earnings release about a month ago. We've significantly hedged and reduced our rate exposure to 2% of invested assets from what used to be 16% in 2020. Again, this is on a much larger balance sheet. Clearly, we reduced our exposure drastically. That's intentional. We aim to hold more floaters when rates are biased higher and fewer when they're biased lower. That's just the strategy. We're just very active managers here.
In terms of assumptions, what we have behind that is a forward curve that assumes still another three cuts by the end of 2026, really fully aligned to the forward curve. That will have minimal impact on SRE. As mentioned, you can see that at the bottom here, every 25 basis points move in short rates impact SRE by only $10 million-$15 million. A lot more than minimized than it used to be. On the prepay front, you see this slide is showing the prepayment volumes declining. With yields on the asset that prepaid also declining, the joint effect on SRE is actually decaying, is decreasing. It is reducing the net effect on the SRE impact. In dollar terms, you see prepayment peak in the first quarter of 2026, then normalize. Again, on lower yields.
The joint effect is really going lower and lower and slower and slower. While elevated prepayments really created some volatility, short-term volatility into the earnings, again, those are transitory. They also highlight the fact that the asset class is liquid. We have been able to reinvest actively against the cash that we received. As prepayment normalized after Q1 of 2026, as you see here, we expect more stable reinvestment yields and greater earnings predictability. Remember, only a small fraction of the balance sheet is prepaying, and it is getting smaller and smaller. The third point refers to this exceptionally profitable business that we wrote during the COVID era. If you recall, we were enjoying very cheap cost of fund and liabilities at the time.
If you look at the left-hand side of this page, we try to illustrate with a FABN that was issued during the period. You see that the spread expands from 120 basis points to 190 basis points as rates rose due to our allocation to floaters, which was a higher percentage of the assets at the time. As this business is now running off, we see less of this benefit coming into the mix. That was another headwind that we were facing mostly in 2025. This is really running off, burning off, and is not going to be a material impact or create a material impact in 2026 and beyond. In terms of active management, we are active managers. We manage the book in a very dynamic way.
Since we are principal, we manage the business in ways where we effectively optimize our assets and liabilities. For example, we have executed, to the point that Martin was conveying earlier, countercyclical actions. We retain cash. We increase cash and treasury to preserve the optionality of entering again the market when the market is conducive to it. That is an opportunity that we actually harvested, if you recall, in the early days of April this year. That is something that we have done now with $22 billion of treasuries. We also put some portfolio optimization initiatives in place, including buying a small piece of ADIP ONE and some active reinvesting of low-yield corporates into higher spreads. Some of that is realizing P&L that does not flow into SRE that can effectively be invested into high-yielding assets that are contributing to SRE. Both of those are adding value.
You can see here that in 2026, that should provide a $100 million of fundraiser SRE uplift. Let's talk about the alts now. We discussed the exposure to the tune of 5% of our balance sheet, 5% allocation to alts continue to deliver very strong and downside-protected returns. We have intentionally over time migrated more of the alts towards the AAA because the AAA was delivering stronger returns. Our stake in Athora is the largest piece outside the AAA. As the business is in the process of a strategic acquisition that is expected to double the size, we expect this to be a material driver and a more consistent driver of value creation. With rates declining and positive development in the portfolio, we expect a mean reversion towards the 11% long-term return that we announced.
This portfolio remains very high quality, is a core component of the strategic asset allocation, and is definitely a strong complement to the core spread business that we run alongside of the alts. Let me cover the building blocks of our 2026 SRE growth here. This page outlines our building blocks for our 10% growth outlook. All are consistent with what we've said earlier, right? We've been conveying the same thing. The baseline is about growth and organic growth. It's anchored to the $85 billion plus. Zooming in into other key drivers, we see the runoff is very stable and predictable to the tune of 11% to the point that was conveyed earlier. Our cost structure is industry-leading and is getting efficiency. With 25% of inflow financed by ADIP, our sidecar, we maintained really the right balance between growth and capital efficiency here.
If you put that all together, we expect $3.8 billion of SRE in 2026, assuming an 11% alts return. Let's look at the SRE trajectory over time. You can see that over the past seven years, Athene has delivered a 16% SRE CAGR. That was across multiple interest rates and credit environments. Some years we generate more growth. Other years we generate a little less due to cyclical transitory items that we discussed a little earlier. That's entirely consistent with the way we actually model the business for which the long-term trend is really steady and consistent. The structural growth is really not affected by those transitory impacts or transitory items that we just discussed. Looking ahead and in line with the five-year plan, we continue to target the 10% rate that we announced at the earnings release back months ago.
That will be a 10% on average until 2020 or through 2029. By the way, that projection assumes no benefit from rates, spreads, or inorganic growth. It is purely driven by the base case here, the strength and durability of our business model. I will come back to some assumptions on our baseline plan. Let me zoom in into those deviations that we can see around the mean. Why do we have some local deviation to the expectation? Why is there a behavior of non-linearity? The SRE pattern can appear non-linear due to some timing differences between asset and liability and the runoff of both. Our disciplined management, reinvestment, and stable liability profile, and ALM really are managing those differences over time and really are converging back to the long-term prospects. Variations also arise, as you can see on the page, from new business mix.
We have different funding cohorts. They recognize or they realize rather the spread differently over time based on upfront cost versus not or amortization schedule versus not. Policy behavior as well are something that may impact behavior locally. If you have such actions as post-surrender charges that are changing after the surrender period, that can shift the behavior on a short-term basis. Those are really local and temporary effects. They are not structural changes. The long-term SRE growth profile remains strong and predictable. All of those are deviations around the mean. I mentioned a little earlier some of the aspects of our plan and why the plan was very conservative. Let me just shine a light on a couple of things here. Our plan remains really conservative and deliberately conservative. Above the 10% baseline assumption, we potentially have some upside. Those are captured here.
We have no assumption for inorganic growth, even though we have both the capital and capability. Credit spreads are held flat at historical tight levels. That is the base case. We also have $22 billion. We discussed that in countercyclical assets. Those are assumed to be static. Said differently, we have no deployment upside included in the plan for those $22 billion. We also have limited contribution from emerging markets or new products. We have been very nimble in our capacity to harvest some of those new businesses. The upside here can be very, very material. In short, there is real upside not captured in the plan. That would come as a benefit above and beyond 10%. Let me close on capital generation. Even under our base case, Athene is a powerful capital generator. You see that today we hold $9 billion of deployable capacity.
That includes $3 billion of excess equity, $3 billion in enrolled ADIP capital through the sidecars, and nearly $3 billion of untapped leverage. Even with a base plan of $80-$85 billion of inflows per annum, we would generate $3 billion of excess capital through 2029 while continuing to pay an annual dividend to Apollo Holdco of $750 million. We are really progressing from a position of strength, self-funded growth, and continued returns to shareholders. With that, let me pause and hand back to Martin. Thank you.
Perfect. Thank you. Let me just zoom up to the Holdco. We will close it out there. This is the flywheel. Anyone that follows us knows this. I think it is such a compelling financial story to convey. This really explains why we want to own different pieces of the business.
Why do we want to own business through Athene 100%? Why do we want to own business through ADIP at a percentage of that? Why do we want to own the asset management fees that derive from all of that? It sort of articulates it, obviously, in a return on capital. If we invest capital and leverage that with sidecar capital on equivalent terms and then lever it the way the business is typically levered, you can see the asset flows that that creates. We earn spread earnings directly on the 100% piece. We earn spread earnings indirectly, if you like, through the ADIP ownership that we have in the wrap fees. We earn FRE on all of the above at the same rate.
At a 25% ADIP support level, that gets to a 20% return on equity at the top of the house. That does not take account of the benefits of growing AAA. It does not take account of ACS fees that Athene pays to the asset manager, as does any third party that is participating in syndicated debt. The alignment story is really strong. The reason to own economics at different parts of the value chain is strong. We think it really combines itself well into a compelling financial story. This is just a different way of looking at it. I think it actually might be even more clear. Capital funds growth.
Capital, whether it comes from Athene directly, from ADIP, or from the debt capacity that's created as Athene grows, all of that creates both organic growth and inorganic growth, all of which creates different forms of FRE and SRE. Same point as above. That growth itself funds AAA. AAA enables growth in other parts of the system. It enables new origination businesses, new platforms, new funds. It allows us to support the capital business. That creates earnings in each of the earnings components that we report. Growth in Athene is sized at a sufficient level with earnings, both capital consumption and usage, to fund a dividend each year up to the Holdco of $750 million. That itself allows us to fund strategic investments and to build other FRE-accredited businesses. Same point, said differently, maybe a bit more clearly.
I think it really is a compelling way to look at it. Let me close out. We are in a multi-decade period of growth across the industry. There is demand for products, current generation. We expect that there will be more demand for new generation products as they are developed. Product design will improve. It will address the retirement crisis that we have, not just here in the U.S., but in other countries around the world. The combination of Athene and Apollo together, the management, the origination capability, the capital, the cost, we think is unmatched in the industry. That just allows Athene to be the competitor that it is. You have heard the 10% growth expectation loud and clear a few weeks ago and then multiple times today. Over time, we think there is upside.
are reasons that, for all the reasons L.J. just walked through, we would expect there to be upsides to the plan over time. The base plan, as L.J. said, is current generation product. We think the really interesting thing is what comes next. With that, I will ask Noah to moderate.
We have about 20 minutes or so of time to take some live Q&A. If anyone has a question in the room, we'll just call on you. If you wouldn't mind just introducing yourself, name and firm, would be great. Bill, why don't we start with you?
First of all, thank you. Bill Katz, TD Cowen. Excuse me. Thank you for a wonderful update. You talked a lot about the new growth opportunity. I was wondering if you could speak to maybe where you are in the arc of the opportunity in the 10 of the 20 to which you have the larger relationships. What's going to take to get on the other 10? And then maybe talk a little about the non-U.S. opportunity if that's not embedded in that 10 to 20.
That is the institutional opportunity for our retail annuity products. I do not know that we will ever be on all of those remaining. We are in various states. If you go back to the beginning of the year, Raymond James is a new platform for us this year. Like I talked about success, when we get on platforms, we are already selling significant volumes there. I do not know that we can say, yeah, we expect over the next few years to get X out of the new platform. I think there is actually more growth in expanding the ones that we are already on. I talked about additional shelf space and additional activation of people inside of those institutions. Just given the scale of the bigger ones, I think that represents more continuing upside than new distribution for retail.
I'll pick up the international piece. If you think about history, Athene got to be sizable. Its need for investment grade made us a really strong originator. There was an anchor order that needed 30% of everything. Internationally, no one has scale. Let's start with that. PIC, which is what we're in the process of buying, which we hope to have approved subject to regulatory end of the first quarter next year, on a scale basis in pounds, roughly the same size in the market as Athene is. It's going to make us a really good originator in the pound-denominated business. You're seeing us make moves there as well. In the euro market, insurance is a less efficient originator because of the structure of the assets and liabilities. Still, Athora is at scale.
You will see us on the asset management side of the business dramatically grow the capacity to hold and retain assets, probably not in insurance structures, but more likely in commercial structures the way we have in the U.S., like in mid-cap and elsewhere. I expect there to be more growth on a percentage basis in European markets. Let's include the U.K. for that purpose than I do in U.S. markets. Europe needs everything the U.S. needs, but its capital markets are not set up the same way. There is just less competition, and we should expect them to grow very fast.
Chris.
Chris Kotowski from Oppenheimer. Question for Grant, I guess. At the 2021 Investor Day, you had a slide up that said the average duration of your liabilities was nine years and now it is seven. Did that change because the market dynamics and pricing changed? Or it matches your liabilities better? Or is it the prepays? Or why the change?
Good observation. As we've gone into the institutional channels for annuities, those tend to be somewhat shorter duration products. When we're selling fixed indexed annuities in the IMO channel, they have 10, 12, sometimes 15-year surrender charges. In the bank channel, they have five. In the broker-dealer channel, they have seven. Part of it is also then the channel mix. Our funding agreements tend to be somewhat shorter than our traditional retail annuity business. It is part differential growth in the different channels. Also, the way that we've grown the retail business is into channels that tend to have a little bit shorter life to them.
Patrick.
Thank you. Patrick Davitt, Autonomous Research. I appreciate that you're not assuming wider spreads. I think some of the more skeptical investors I speak with would say you should be assuming the opposite. Just with all the new entrants, the competitive environment in the retail channel is such that spreads will keep coming in. What gives you comfort that that competitive environment is not one where new origination spreads just keep grinding tighter?
First on the asset side. On the asset side, we have a number of anomalies taking place. Anomalies tend not to persist. The financing of BB loans, CLOs, is now so efficient that in some instances, BB has traded through BBB. That will not exist for very long. It just does not make sense from a risk reward. You can see our CLO holdings coming down as a result. Things that do not make sense tend not to persist forever. On the asset side, it is not to say they cannot get tighter. It is our job to not assume that this market recovers. You have heard all the reasons why. Our job is to originate new. We are already originating new. There will be a replacement to the CLO market. It is not going to persist this way.
We will be the ones who lead that replacement to the CLO market. You will see us dramatically ramp up the direct originations, which you have already. You saw deals with, for instance, RWE. You saw a deal in the U.K. You have seen a number of others. It is our job to continue to diversify the spread. I do not think spreads are going to come back. Could they get tighter? Never say never. I do not expect them to get tighter for structural reasons. Want to talk about liabilities?
Yeah. On the liability side, Patrick, a few reasons that we're optimistic. The new entrants are really stuck in the independent insurance agent channel. We're already selling virtually zero MIGAs there. As they try to get a toehold in the market, that's where you see it. That is where we talk about our pricing discipline. They do not have the credit ratings. They do not have the tech stack. They do not have the wholesaling capability to yet be into the institutional channels. We're still selling a lot of—we're on track to sell a record amount of fixed indexed annuities this year. A lot of those are sold in the IMO channel. 70% of them are sold with a bespoke index that they can only buy from Athene, a unique crediting strategy that they can only buy from Athene. In the independent channel, we're picking our spots.
We're doing great in FIAs. In the institutional part of the retail market, pricing is more rational. We're selling the full product spectrum and competing very well. Very optimistic about our ability to continue to grow in the retail business, notwithstanding competition.
I'll add two more just to be aware of. When you don't have the asset origination, you don't have the liability production, you don't have the cost structure, and all you have is capital, for you to try and build your business, you have to do something. What they're doing is moving to Cayman. They can just hold less capital. I think the one positive or silver lining of all this press attention on private credit, however misguided, it is very clear to me that U.S. insurance regulatory is not going to have reciprocity with Cayman. If you're in Cayman, you run the risk every single day that you will eventually have to pony up more capital to do that. The second is, how do you fund the equity of these businesses?
As you say, one of the things that L.J. and Martin did not really mention, we've hit escape velocity. Not only is the business self-sustaining at $85 billion without new capital, it's cash-generative and capital-generative. When you're at a small level and you're trying to grow your business, $85 billion of origination is more than all the new entrants, the size of every new entrant that we're doing every year. When you're trying to grow your business, you either come up with the capital yourself or you raise a sidecar. If you do not have the economics in a sidecar, you have to give away your asset management fee. The wisdom of giving away your asset management fee in a market that is short asset management, one really has to question. Because you're also transferring FRE into SRE, which in today's valuation dynamic makes little sense.
I think some of the competitors may hit escape velocity. I'm very skeptical that the vast majority of them hit escape velocity and become self-funding in any way. We're already seeing some shrinkage, closings, mergers. I expect to see more of it.
I would just add, at some point to hit escape velocity, you have to have rational pricing. You can only do loss-leading business to get a toehold for so long. Sooner or later, you've got to make money on your capital.
Glenn.
Hi. Glenn Schorr from Evercore. Some people have the perception that retail deposit is good and funding agreements not as good or think of more like wholesale funding. I know you manage it more as a balanced mix and manage it over time. I am just curious if you can just talk towards that specifically, as sometimes competition or whatever has the retail piece a smaller piece of the pie. Some people think less good.
I'll give a little bit of historical perspective. SunAmerica, the most successful company ever, was basically built on wholesale funding. We have an interesting situation that's happening in the U.S. and Europe and Japan. The large banks, as a result of consolidation, are deposit-rich. Anyone who also covers the bank market knows they're not seeing the same loan growth. We are a really attractive source of loan growth with bespoke, the ability to structure duration, collateral, rating, and everything else they want. A FABR is an incredibly efficient asset for the banking channel. Why should we like them? Known maturity, no policyholder behavior variation. The simplest product to run from an OPEX point of view and a customer service point of view, basically no one calls you. No agents involved, no commission, no upfront funding.
Financially, it is a better product than any other insurance product. I will caution, you do not get to be large unless you are also doing some social good. It always has to be balanced with the provision of insurance to real people. It is no more complicated than that. The financial makeup, why people do not like this product is because people have used it and funded it with commercial paper. There are companies in our industry that fund short, that do this for a variety of different reasons, which make little sense to us. They create funding risk. There is a chart that you will see in the appendix that we provided that basically says we have zero. Most of the industry has zeros. There are four or five outliers. Most of you know who they are.
We did our best not to attach names to the outliers this time. We take too much heat.
Funding agreements have lower capital charges. They have limits from rating agencies. We like all our liability channels. We underwrite them all to the same mid-teens unleveraged returns.
Hey, Brennan Hawken from Bank of Montreal. Thanks for taking the time today. There were two step-downs in the pace on both the liability side and the asset side expected here within either basically the near term or within a couple of quarters. Can you speak to what drives the confidence of that? Is there something? How much visibility do you have into it? What kind of underlying assumptions have to embed there?
Again, I'll take the asset side. I think you've heard us on the calls. We have a strong asset origination pipeline. We have a very good sense of where we're going to end up. We can also see expansion of channels, expansion of demand, expansion of platforms. We've seen, at least in the platform space, we've seen almost no compression of spreads. It's very, very granular business.
Liability side.
We put our best foot forward in a planning process all the time. Reality is always different. Generally, reality has been better than our plans. I mentioned one of them. We're making a pretty concerted effort in the RILA spaces. We've hired a bunch of incremental wholesalers. That business is principally through the broker-dealer channel. We are making a much stronger effort there. We still see underlying strength in our other businesses. We are getting scale and uptake in the new channels. Pretty confident about what the future holds.
The asset side, we hit our five-year target in one year on origination at constant spreads. It is just the momentum. We did not label them as platforms number 17 and so on. We talked about three or four other initiatives that are sort of platform-esque. We are adding to the stable. The pipeline, to where Marc started, the pipelines are as full as they have been. You can see it. You can see it quarter by quarter what we are actually printing.
Alex.
Great. Thanks. Hey, guys. Alex Blostein, Goldman Sachs. I was hoping you could expand on M&A a little bit. That was one of the areas where you brought that up as an area of upside that's not in your kind of core business plan. I'm assuming you're talking about something other than PIC. As you look at the M&A landscape, it's been kind of quieter for you guys on that front for the last couple of years. What looks interesting today? Given your point around excess capital, do you expect to self-fund a large portion of whatever inorganic could be possible? Or would something require additional capital fundraising?
Let's start with the U.S. market. In the U.S. market, there's not much that's interesting. At the end of the day, we look at inorganic and we compare it to organic. Why would we pay more for something with degraded surrender charges and degraded market value adjustments that comes with overhead concentration risk? It just doesn't make any sense. If you have no presence in the market and you're trying to buy scale, this is what you're forced to buy. We have a situation, much like I talked about anomalies, where BB traded through BBB. Acquired business M&A has traded through originated business. When we can originate $80-plus billion, there's nothing to buy that's $80 billion, particularly with locked-in spread. We always look at capital against the alternative of just originating it. Will this persist forever? I don't know.
Most of the market has been consolidated. The couple of deals that are pending, I think they're very poor deals. What's below very poor?
Terrible.
Terrible. And I haven't been shy about the point of view. In Europe, I think more interesting. I would expect it. I mean, we'll turn around and we'll buy something in the U.S. The common sense for me is we will be more active in Europe. Europe regulatory is getting better, not worse. Europe understands that they need to normalize to be competitive with the U.S. You're seeing some fraction of the DRAHI recommendations be implemented. You're having a productive conversation for the first time in a really long time about securitized product and capital charges. You're seeing places like the U.K. really go out of their way to get private capital off the sidelines. The other market that we've spent no time in talking about today is Japan. For me, we get all of our partners together somewhere in the world every two years.
I try to pick the place that I think is going to be the most interesting market. Two years ago, we had them in Abu Dhabi. In February, all 200 Apollo partners will be in Tokyo. I think the Japanese market, where we already have a sizable reinsurance presence, $5 billion-plus a year, I think looks really, really interesting.
Steven.
Thanks. Steven Chubak at Wolf Research. I did want to ask on ADIP and specifically, what is the optimal level of utilization? It feels like it's been a little bit of a moving target. I think the thought was it would be about a third. And that could move higher over time. Now I see the 25%. But just wanted to get some perspective on how you're thinking about utilizing these third-party vehicles and what's optimal in your view?
I think we get to budget it conservatively. The more we own, the more growth rate we get. If we budget at a third, that's where we've been historically. That's a more aggressive assumption. We can always go up and down, as you saw, at any point in time where we think the marginal impact of doing new business or inorganic business is not as good as buying back or buying more of ADIP 1 or ADIP 2. We have all these levers that we get to deploy. I assure you, we are not going to sit inside of Athene with another $3 billion of excess capital. One of three things will happen in the business. Either we will do something inorganic or grow organically a lot faster and use up that excess capital.
Two, we will own a lot more of ADIP 1, ADIP 2, or ADIP 3 and therefore grow faster. We will move that capital with regulatory permission to the holding company and use it to grow FRE or to buy back stock. $3 billion is not going to sit idly inside of Athene.
Wilma.
Hi. Good afternoon. Wilma Virdus with Raymond James. Can you talk about the RILA hedging environment, which appears to be pretty competitive right now? Does Athene have advantages there versus incumbents given the size of its balance sheet? Thank you.
I would say the RILA market, like all markets, is competitive. No, I do not think we have any unique hedging advantages. Yes, we have a scaled balance sheet. We know how to hedge. We have some interesting product features. That is one where we are competing. It is a product, as you know. It is a registered product. It is the first registered product for Athene. I think our growth has been slower there because it is the first time we are competing with a registered product. I think you will see us make significant headway in the next couple of years.
Mike.
Hi. Mike Brown from UBS. On Viterra, I just wanted to see if you could maybe expand on the opportunity in the guaranteed income for life product market. What's your go-to-market strategy? Do you need partnerships to really execute on that? How could adoption grow over time?
I think we've seen the environment. Thanks for the question, Mike. I think we've already—it's early days is the short answer. I think as we attend conferences talking about guaranteed income or the 401(k) space, clearly conversation about the need for a guaranteed option has grown dramatically over the last couple of years. Our go-to-market strategy is to have a product that we think is consistent with the way 401(k) plans work. If you think about 401(k) plans when they were first adopted, your employer basically said, "Here. It's all do-it-yourself." Over time, they've kind of—we characterize it—it's been kind of the DB-ification of DC plans. You hire a new employee today, you automatically enroll them. They have the right to step out. If they don't change anything, they get automatically stepped up. If you think of a target date fund, it's automatic asset allocation.
We have created a product that is a QDIA that gives them automatic guaranteed income in retirement. We think that product construct will win. We need to prove it in the marketplace. We have just started our relaunch. We think that putting it in the QDIA is so important because most people, like 70% of people with 401(k) plans, never make a decision the day after they set it up. If you have a product that is relying on somewhere down the road when somebody gets to 55, they are going to switch on income, I think then you are telling people you are offering them the option of guaranteed income, but you are not going to have much uptake. Whereas if it is in the QDIA and they can always opt out, they will by default get guaranteed income in retirement.
Certificatable, they can take it with them when they leave the plan. That's our product.
I'll come back on the other side of it. I would say this. There is nothing but demand for guaranteed lifetime income. It may not be in the right form. It may not be sold in an annuity format. It may be sold either naked as guaranteed lifetime income or as Grant suggested through Viterra. What's the limitation? It's actually assets. The ability to originate long-dated assets with spread is what makes this attractive. If you look at our product set today, we do it for SPIAs. We do it for the product in Viterra. We do it for some amount of PRT business. The entire industry, in fact, I would say every asset, everyone who needs asset, we're all short really long duration. Really long duration can be risky because you have to be very careful of the counterparty and the projects and everything else.
We can grow that business only as fast as we grow long-dated origination.
We have time for one more question. Take it from Ben back there, please.
Thanks. Ben Budish from Barclays. Maybe I'll squeeze in two quick ones. Maybe just the first one. You talked about, I think it was Martin, if I remember, 10% on average, which means some years might be below, some might be above. It sounds like based on your expectation for normalized 130 basis points of spread, that might be a 2027 event, maybe with some more upside from some new business. I'm just curious, is there anything else on the other side of that? I think there's a perception—we talked about this earlier—that because funding notes tend to be shorter in duration, you might see a pickup in runoff at some point during the forecast horizon. Just curious how, as we think beyond 2026, how we might think about the deviation from that 10%, which gets us to the average over time?
It's an average. Most of the business we're writing and buying, liability side, asset side is predictable sort of contractual maturity. We know volume, timing, and yield rate. It's really, and we've sort of built it from the bottoms up. Where have we been surprised, if you like? It was the slide that Marc showed, which was AAA spreads on CLOs came in so much relative to what we expected. We are de-emphasizing that going forward. You saw from another side, there's not zero prepayment risk, but it flattens out and is modeled that way. It just becomes less of a factor going forward. As we look at the year-by-year progression, we are, and I said this earlier, going through a period of time when we're seeing dual headwinds in the runoff of the business.
They both dissipate, both sides of the balance sheet. That is our current view. That is all the assumptions, all the logic that we use to build the model. We have obviously got a decent amount of confidence behind those numbers going forward.
Great. On behalf of our team, I would just close by saying we very much appreciate your time and attention this afternoon during this session. As always, if you have any questions on anything we discussed, please feel free to reach out. Thank you.