Pension Funds Are Mixed or Mum on More Cash for Apollo

When investors in Apollo Global Management learned last week that the firm’s chief executive had paid $158 million to the registered sex offender Jeffrey Epstein, they hardly blinked.

After the private equity firm announced the figure, revealed by an outside investigation, its stock rose nearly 7 percent. That was a far different response from three months ago, when shares plunged over concerns about the financial ties between Mr. Epstein and the chief executive, Leon Black.

Apollo soothed investors’ nerves with its announcement that Mr. Black, one of its founders, will step down as chief executive and that the firm will expand its board. Mr. Black will remain chairman.

A more important test could come the next time Apollo seeks to raise money from the 1,500 pension plans, foundations, sovereign wealth funds and other institutions that invest with it. These limited partners fuel its ability to carry out corporate buyouts, extend loans to companies and make other investments.

So far, their response has been mixed. One of the biggest public pension plans in the United States — the California Public Employees’ Retirement System, or CalPERS — offered only cautious support.

“While we are encouraged by the independent investigation and steps Apollo has taken, the recent disclosures remain concerning, and we will take these matters into consideration as part of our extensive due diligence of any potential future investments,” said Marcie Frost, the chief executive of CalPERS, which invests in nine Apollo funds.

But the Florida State Board of Administration, which makes investment decisions for the state’s retirement system, was satisfied.

“The actions the firm has taken with regards to succession and governance underscores Apollo’s commitment to following best practices,” said Ashbel Williams, the board’s chief executive.

Other limited partners have stayed quiet. A half-dozen state pensions either declined to comment or did not respond to requests after the firm announced the results of the outside review. The Pennsylvania Public School Employees’ Retirement System, which had said that it would not invest additional money with Apollo until the review was complete, declined further comment.

On a conference call with analysts after Apollo released quarterly earnings on Wednesday, Marc Rowan, the co-founder who will take over as chief executive, said the “vast majority” of investors were satisfied after a “busy week of communication” to discuss the review and governance changes.

“They appreciated the seriousness with which we took the process,” he said. Some, he acknowledged, may need more time to assess the firm’s response.

Any lingering unease could be squelched by Apollo’s solid performance. Its assets under management rose $22 billion in the last quarter to $455 billion, an indication of the increased value of the companies and other assets. Apollo posted net income of $434 million, or $1.80 per share, up sharply from $166 million, or 68 cents a share, from a year earlier.

Mr. Black asked for the review in October, after The New York Times reported that he had paid at least $50 million to Mr. Epstein, who died in a Manhattan jail cell in 2019 while facing federal sex trafficking charges.

The review found no wrongdoing by Mr. Black, saying the money was for “bona fide” services including tax and estate advice. It also said Mr. Black was not aware of Mr. Epstein’s predatory conduct and believed his 2008 guilty plea in a case involving a teenage girl had been an isolated incident.

Marc Rowan, center, will be Apollo’s next chief executive.Credit…Kevork Djansezian/Reuters

Corporate governance experts said it was natural for there to be lingering questions about why a billionaire deal maker like Mr. Black had paid so much money to a man with Mr. Epstein’s history..

“The bread and butter of a firm like Apollo is its ability to do unmatched due diligence on investments, and it is clear that Leon Black did not do that with regards to his own billions of dollars,” said Dennis Kelleher, president of Better Markets, a nonprofit group that supports stringent financial regulation.

Apollo’s decision to add four independent board seats was a signal that it was trying to change how it operates, said Usha Rodrigues, who teaches corporate law and business ethics at the University of Georgia School of Law.

But Mr. Black, 69, will still hold great sway over Apollo.

“I am surprised he is going to stay on as chair, but he is a founder,” Ms. Rodrigues said.

There is another reason for the firm not to distance itself, she said: “His prowess is what has made Apollo such a success.”

Mary Walsh contributed reporting.

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