(Bloomberg) — It retains getting worse for Leon Black.
Over the previous week, Black’s big funding agency, Apollo International Administration Inc., has confronted one query after one other about his decades-long relationship with convicted intercourse offender Jeffrey Epstein.
First, his personal board ordered an exterior assessment prompted by Black himself. Then a Pennsylvania pension fund paused new investments — and the state of Connecticut has accomplished the identical. One main guide — a gatekeeper to $160 billion of investor commitments — has urged purchasers to carry off, and one other is contemplating taking comparable motion.
Purchasers who for years loved among the finest returns on Wall Road are reconsidering their ties to Apollo amid renewed scrutiny over Epstein, spurred by a New York Instances report earlier this month and given contemporary consideration from an unsealed deposition of Epstein affiliate Ghislaine Maxwell.
Buyers distancing themselves from the agency present how critical the difficulty has grow to be for Black and his basic companions. Some purchasers aren’t satisfied that the assessment, which will probably be dealt with by legislation agency Dechert LLP, will probably be sufficient to clear Black’s identify, in response to folks aware of the matter.
A freeze in new cash might damage Apollo at a time when it’s making an attempt to boost $20 billion for a number of new funds. The pandemic-spurred turmoil within the credit score markets is a major investing alternative for the agency, which is understood for purchasing struggling companies. Apollo is searching for to reap the benefits of market dislocations in addition to spend money on non-public debt, folks with information of the matter mentioned in April.
Black’s rising troubles mirror the altering politics of the investing world, the place main funds have grow to be extra delicate to environmental, social and governance issues. The brand new focus signifies that even the prospect of profitable returns will not be sufficient of a lure within the midst of a scandal.
“Whereas efficiency is all the time going to be an vital issue, more and more it’s not the one issue,” mentioned Gerald O’Hara, an analyst at Jefferies Monetary Group Inc. “In some respects, there’s some willingness to sacrifice efficiency for a corporation that’s run with good governance, good ethics.”
Funding adviser Aksia advised purchasers to not give new cash to Apollo, Bloomberg reported Friday, whereas Connecticut mentioned it’s halting new investments with the agency. Earlier within the week, the Pennsylvania Public Faculty Workers’ Retirement System mentioned it might cease making extra investments in Apollo for now, and guide Cambridge Associates is contemplating not recommending the agency to its pension and endowment purchasers.
Whereas Black confronted stress within the fast aftermath of Epstein’s arrest final yr, investor angst was rekindled by a New York Instances report that he had wired not less than $50 million to Epstein after his 2008 conviction for soliciting prostitution from a teenage lady. The article didn’t accuse Black of breaking the legislation. Apollo shares have fallen about 12% because the story was revealed on Oct. 12.
“We’re firmly dedicated to transparency,” Apollo mentioned Friday in an announcement, noting that Black has been speaking often with traders. “Though Apollo by no means did enterprise with Jeffrey Epstein, Leon has requested an unbiased, outdoors assessment relating to his earlier skilled relationship with Mr. Epstein.”
In a letter to Apollo’s restricted companions this month, Black mentioned he deeply regretted having had any involvement with Epstein. Black mentioned he had turned to him for issues resembling taxes, property planning and philanthropy, and that nothing within the Instances’ report was inconsistent with an earlier description of their ties.
Learn extra: Leon Black’s Epstein Hyperlinks Threaten Apollo’s Fundraising
It is going to be powerful for traders to chop ties fully with Apollo as non-public fairness funds sometimes lock up capital for years — a trade-off many are keen to make with the promise of high-flying returns. And until the inquiry reveals one thing extra damning, purchasers could finally determine to look the opposite manner, mentioned three traders who requested to not be recognized.
It’s significantly unappealing for purchasers to tug away given the agency’s stellar returns. Apollo’s flagship non-public fairness fund, which opened to traders in 2001, has delivered annual beneficial properties of 44%, Bloomberg reported in January.
However even yield-starved traders trying to pump more cash into non-public fairness could select to go elsewhere in future, as rivals flood the market with new choices.
“It’s a really aggressive race for capital and one factor that we proceed to see in fundraising is it’s in some ways extra just like a political course of than a capital-raising course of,” mentioned Sarah Sandstrom, associate at Campbell Lutyens, which helps non-public fairness companies increase cash. “You might be telling your story, creating relationships with traders.”
(Provides earlier remark from Black in 12th paragraph.)
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