Apollo investor rebellion builds on Leon Black’s Epstein affair

This is going to be bad for Leon Black.

Last week, Black’s giant investment company, Apollo Global Management Inc., has faced one question after another over a decade about sex with its sex offender Jeffrey Epstein.

First, his own board ordered an external review by Black himself. Then a Pennsylvania pension fund halted new investment – and the state of Connecticut has done just that. One lead advisor – a gatekeeper for $ 160 billion of investor commitments – has urged clients to stay closed, and another is considering similar action.

Customers enjoying some of the best returns on Wall Street are reconsidering their relationship between Apollo and a renewed focus on a shared statement by Epstein’s colleague Ghislyn Maxwell, according to a New York Times report this month Has attracted

Investors distancing themselves from the firm reveal how serious the issue has become for Black and his general associates. Some customers are not sure whether the review, which will be handled by the firm firm Dechert LLP, will be enough to clear Black’s name, according to people familiar with the matter.

A freeze in new money could harm Apollo when it is trying to raise $ 20 billion for several new funds. The epidemic in the debt markets is a major investment opportunity for the firm that is known to buy struggling businesses. People with knowledge of what was said in April want to take advantage of the chaos in the Apollo market and invest in personal debt.

Black’s growing troubles reflect the changing politics of the investment world, where key funds have become more sensitive in terms of environmental, social and governance. The new focus means that even in the midst of a scam, the prospect of attractive returns is not enough.

“Performance is always going to be an important factor, not just a single factor,” said Gerald O’Hara, an analyst at Jefferies Financial Group Inc. In some cases, there is a willingness for a company to abandon performance. Good governance, with good ethics. ”

Investment advisor Aksia told clients not to pay new money to Apollo, Bloomberg reported on Friday, while Connecticut said it was holding off new investments with the firm. Earlier in the week, the Pennsylvania Public School Employees Retirement System said it would stop making additional investments in Apollo for now, and consultant Cambridge Associates is considering not recommending the firm to its pension and settlement clients.

Although Black faced pressure soon after Epstein’s arrest last year, investor Angst was again embarrassed by the New York Times report that he was convicted in 2008 of Epstein’s purchase of a minor for prostitution. Epstein owed at least $ 50 million. The article did not accuse Black of breaking the law. After the story was published on October 12, shares of Apollo declined by almost 12%.

“We are strongly committed to transparency,” Apollo said in a statement, noting that Black is regularly communicating with investors. “Although Apollo never did business with Jeffrey Epstein, Leon has requested an independent, out-of-the-box review of his previous professional relationship with Mr. Mistine.”

In a letter to Apollo’s limited associates this month, Black said he deeply regretted any involvement with Epstein. Black said he had turned to Epstein for matters such as taxes, estate planning and philanthropy, and nothing in the Times reported was inconsistent with earlier descriptions of their relationship.

It would be harder for investors to cut ties with Apollo altogether because private equity funds typically lock up capital for years – a trade-off prepared with the promise of multiple high-flying returns. And until the investigation reveals some more damage, customers may eventually decide to look the other way, with three investors saying they would not be identified.

This is particularly unsuitable for clients to pull off given the firm’s stellar returns. Bloomberg reported in January that Apollo’s major private equity fund, which opened to investors in 2001, gave an annual profit of 44%.

But even yield-hungry investors looking to inject more money into private equity may choose to go elsewhere in the future, as rivals flood the market with new offerings.

“It’s a very competitive race for capital, and one thing we continue to see in fundraising is that it is more akin to a political process than a capital raising process,” said Campbell Lutyens partner Sarah Sandstrom Said, which helps private equity firms raise money. “You’re telling your story, building relationships with investors.”

Bloomberg’s Sonali Basak and Sabrina Wilmer contributed to this report.

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