I'm David Samber, co-head of private equity along with my partner Matt Neward. We're happy to talk to you about all the exciting growth opportunities in our equity business. Before we start, I just want to say that Invited Clubs, a Fund9 portfolio company, is the largest operator of pickleball courts in the United States of America. So it shows you the fantastic synergy of our business. I'd like to start off.
A challenging convention. So, challenging convention is one of our corporate values here at Apollo. I'd like to challenge one right now.
So, the firm's entering its 35th year of existence. We got our start in 1990. And we got started with a very simple idea that permeates almost every one of our businesses. Mark talked a lot about culture.
This is the bedrock of our investing culture. It's this notion of flexibility, this notion of capital preservation. and downside protection.
This notion of leaning in when other people lean out and being contrarian. And we rode that unique investing culture to a preeminent position in our private equity business and now across our credit business. And we built $135 billion of assets under management in our equity business, developing products with this investment culture in mind and penetrating the alternatives buckets of capital allocators over the last 35 years. And our 39% growth, 24% net compounded return since inception have really been the rocket fuel that's driven our business.
And we think there's a lot of exciting growth yet to be had by consolidating our share in what is still a growing market. But I'll submit to you that misses the much bigger opportunity. And the much bigger opportunity is the big picture that Matt and I... so excited to talk to you about today.
So we have a very exciting and compelling growth story for our equity business. It starts with our corporate private equity business. You're going to hear a little bit more about this later, but yet again, 2022 marked that moment in time, that pivotal moment in the market when our patience and persistence was rewarded yet again.
Matt and I chuckled a lot in 2020 and 2021. When all the crazy stuff was going on, cryptocurrencies, memes, NFTs, are we stupid by not following the herd? And then 22 happened and we said, no, we're not stupid for not following the herd. And investors appreciate our consistency. That's the bedrock of our business.
That's what drives our strong returns in any market environment. And we continue to believe that we will take share in our growing private equity business. On top of that bedrock foundation, we have four really exciting businesses that are hitting that inflection point. We're going to see massive growth over the next five years.
Two of them are in what we call hybrid and equity replacement. These are the products that are going to start us on our journey, and we already are market leaders, to penetrate individual investor portfolios and institutional investor portfolios that are, simply put, looking for better products than what exists in the market. the private and public markets. And then these other two products are very closely aligned with big mega trends that Apollo's focus on, our climate and infrastructure business and our secondaries business, which falls under the umbrella of the convergence of public and private and providing liquidity to otherwise illiquid markets.
And then on top of that, we've got really compelling long-term, what we call upside drivers, namely our equity replacement mission, and it is a mission. and then penetrating retirement markets where we already have products in our product suite that are now being allocated into 401k plans in America. All right, this is going to be a fun one. So on the left-hand side of this page, this shows you from 2013 to 2023, how the private equity industry performed.
What were the sources of value creation? And even though from 2013 to 2022, the industry had very strong returns, I would argue the quality of those returns was very poor. The mission of our business, I think, we think, is supposed to be superior risk-adjusted returns, excess returns per unit of risk. You have to be able to do that in all market environments. If you look at the industry, 50% of returns over the decade that we just experienced were driven by multiple expansion.
tremendous historical amounts of multiple expansion. And the other 50% was driven by top-line growth. Almost no return was generated by operational improvement or alpha. That is not a high-quality return.
That's not a sustainable, repeatable investment model. If you look at our business, to the right of that, 85% of our returns were driven by repeatable building blocks that we could access in any market environment. Indeed, we actually produce better returns when the market is poor.
This is the bedrock. This is this investing culture that I'm talking about. I think the industry has to look itself in the mirror and really ask itself, and indeed...
Our clients are asking us, what's the purpose of investing in private equity if it's just levered beta on steroids? We don't want to be levered beta on steroids. If you look at our returns, if you look at all of our investing products, it's all about simple, repeatable processes that will allow us to generate superior risk-adjusted returns in any market environment.
Matt? Great. Thank you. So we are incredibly proud of our private equity business.
For 35 years, we have maintained our discipline and used our creativity to generate excess returns. Private equity continues to be an important driver of our business, not just in the financial sense, but in all the ways that the private equity DNA permeates the broader Apollo ecosystem. Private equity has been an incubator of talent, and many of our senior leaders started their careers in the private equity business, and we are using the capabilities that we've honed in PE to grow our entire platform and build on that history of innovation.
And we are particularly proud of our performance in our two most recent private equity funds, funds 9 and 10. So as David alluded to, when the rest of the industry was paying 11 or 12 times cash flow for assets, we were paying 6 or 7. And we were using less debt, and we were executing our value creation plans. And so as a result, we have massively outperformed. Fund 9's IRR is currently 29%.
Fund 10's IRR is currently 47%. And Fund 9 has also returned $14 billion of capital so far. So DPI, which is a measure of realizations for the industry, Fund 9's DPI is three times the industry average, and Fund 10 has gone off to a very good start as well. All of that is to say that we are really well positioned for Fund 11. So for Fund 10, we've currently deployed about half the fund. We're two years in, so we're right on pace.
And I would expect us to come back for Fund 11 late next year. And based upon our performance and all the positive receptivity we've received, we would expect Fund 11 to be larger than Fund 10. And so that is the foundation. Continued execution in Funds 9 and 10. and positioning ourselves for a very successful Fund11 fundraise. Building on that foundation, we've positioned ourselves for growth in huge markets. Infrastructure, climate, secondaries.
There is a generational need for capital, which we've been talking about this morning. And our platform is incredibly well positioned to capitalize on that opportunity because of our scale of capital. our creativity, our ability to play up and down the capital structure. We have raised funds in each one of these scaling strategies. And in some cases, we've already raised multiple vintages.
Performance is strong. And we currently have $20 billion in assets under management across these strategies. And we would expect these businesses to be two to three times their size over the next couple of years.
And even with that level of growth, we would... just be scratching the surface relative to the $100 trillion market opportunity ahead of us. And the other market opportunity that we're very, very excited about is hybrid.
So as you heard us talk about this morning, for investors who are beholden to benchmarks, equity allocators have been looking for 20% plus rates of return. And while that worked in a low rate environment, chasing those returns, being forced, to try and chase those returns today doesn't make sense because debt is more expensive and it limits your flexibility. You have less downside protection. And so we see a sweet spot in less levered equity and structured equity where you're still generating mid-teens rates of return, but you're doing that with much more downside protection, much more flexibility. It's the best risk reward we see.
And that is the hybrid opportunity. And sophisticated investors Those who are not beholden to benchmarks want access to this because they also recognize it's the best-for-us reward. The supply-demand dynamics for hybrid are incredibly favorable. Demand, because there's enormous demand for the flexibility that hybrid offers. And a historical lack of supply or capital formation, because hybrid hasn't fit neatly into either credit or equity buckets.
We are also uniquely positioned to capitalize on this hybrid opportunity. We've built our entire business on being unconstrained, thinking about intrinsic value, pivoting to where we see the best-rich reward at any one time. And we already have a massive head start, $70 billion in assets under management to hybrid-related strategies, including our hybrid value funds, where we're getting ready to launch Hybrid Value Fund 3, hybrid SMAs, where we've already raised several billion dollars in hybrid SMAs, and then the growth of AAA, which is already one of the largest funds across our entire platform.
So as Matt explained, we define hybrid as... superior risk-adjusted returns in equity, less levered equity, structured equity. And it's how we've invested our own balance sheet for the last decade. We made the decision to open up our alternatives balance sheet, which we call Apollo-aligned alternatives, or AAA, to the market just two years ago. And we gave investors, both institutional investors and individual investors, access to the very way we invest our own capital in alternatives.
And the results have been fantastic. You can see that this is already now the second largest fund at our firm, and we think very soon it'll be the largest, and there's a lot more to go. And the reason's very simple.
We're offering something unique, something special, that the market needs and they're just not getting. This is a product that we've developed that's got a fantastic track record investing in lower-risk, less-volatile equities. It's produced S&P Plus rates of return over the last decade. With a fraction of the volatility, there's a product that's had one down quarter in the last decade. A tremendous track record that now is available to qualified purchasers and to institutions, and they're coming in and they're investing alongside of us.
And this and the hybrid structure is the bedrock of what we're talking about with hybrid and equity replacement. And the real opportunity is this. If you think back 35 years ago.
to when our business got started, it wasn't even an industry, it wasn't even a business, it was a fund. And a lot of pioneer work was done by some folks that are in this room to go out and to get people excited, get institutions excited about investing in alternatives. And they put those allocations, as Mark said, in a very small bucket that has grown over time, and our penetration of that bucket has fueled our growth and the industry's growth.
But our market opportunity is multiples of that going forward. And that really is what our plan is going to deliver. If you think about the opportunity to penetrate with these products and other products that we're working on, the equity bucket, which I would argue is the bucket that people are least satisfied with, where they've generated the least alpha, the least excess returns, the market opportunity for the next 35 years is going to make the last 35 years look like a tiny dot. in that solar system that we're talking about.
I know there's some public equity folks in the room, so I'm going to be careful not to offend, but most people that we talk to, it's not a hard argument to win when we talk about how the public equity markets are simply put broken, right? You've got almost 60% of public equity markets being indexed. You've seen active management fail to perform. over the last 20 years, as Mark said, not because people suddenly didn't get good at their jobs, because simply put, the structure of markets have changed and made doing that job so fundamentally difficult.
But the products haven't changed. The products haven't changed, yet everyone that we talk to recognizes a need for retirees, for pensions, for endowments to get diversified equity exposure, and they're simply put not getting it. They're investing in seven companies that are third in the index.
and they're not getting the exposure they want. In defined contribution, we now are live with AAA as of August with one of our wealth partners. We've got a long pipeline of opportunities after that.
This is going to be the product that allows us to provide better income and better capital appreciation for retirees in America. That is a multi-trillion dollar opportunity that we are uniquely well-suited to penetrate. So to summarize, we have a high growth equity business. Five years ago, we had $84 billion in assets under management.
Today, that's $135 billion. And we would expect the business to double again over the next five years. So not only do we have a growing business, but the rate of growth is accelerating as well. And this is high margin AUM, which obviously drives returns to shareholders.
So the roadmap is simple. Continue execution in funds 9 and 10. Raise fund 11. That's the foundation. Continue to scale in our scaling strategies across climate, infrasecondaries, and then execute and capture the entire hybrid opportunity. In each of those strategies, we have funds, we're raising new funds.
Those funds are going to get larger in subsequent vintages. So the seeds have already been planted. You already have that built-in growth, and that is going to provide the vast majority of the growth that we see over the next couple of years.
And then the longer-term upside is that next-step function increase in equity replacement, retirement, and some of the new products that David talked about. So we're going to continue to use... all of the capabilities that we've built over the last 35 years to action this, and we have a lot of conviction in hitting our plan.
So to wrap up, David started by talking about today's perspective. But if we zoom out a little bit further and look at that longer-term perspective, assets are going to continue to move to the private markets. We're positioned to capitalize on the big macro trends.
We are aligned with our investors. and we're going to use all of our capabilities and again build on that history of innovation.