Apollo Faces Canada Pension Review as Stain Outlasts Black

One of the world’s largest private equity backers may be pulling back from Apollo Global Management Inc. as the buyout giant struggles to move past the taint of a co-founder’s ties to convicted sex offender Jeffrey Epstein.

The Canada Pension Plan Investment Board, which manages $500 billion, is weighing whether to keep investing with Apollo, according to a person with knowledge of the Toronto-based fund’s deliberations. The CPPIB is disappointed with Apollo’s fund performance and the firm’s handling of former Chief Executive Officer Leon Black’s relationship with Epstein, the person said.

The Epstein scandal precipitated a leadership shakeup this year that put co-founder Marc Rowan at the helm of Apollo. Black stepped down in March, several months earlier than expected in an attempt to quell the attention. Co-founder Josh Harris, who advocated for Black’s exit, has relinquished his day-to-day role at Apollo.

Losing the CPPIB would mark a major setback in a tumultuous year for Apollo marked by mounting scrutiny over Black’s business dealings with Epstein. Some investors, including the Pennsylvania Public School Employees’ Retirement System, decided to pause investments with the firm and analysts openly questioned Apollo’s corporate governance.

Asked about the CPPIB, an Apollo spokesperson said: “There have been no concerns expressed on these topics recently. We have longstanding relationships with approximately 1,700 limited partners, our fundraising activity has been strong and our corporate governance structure is industry-leading.”

The CPPIB has almost $3 billion of capital committed to Apollo’s private equity funds, and is one of the biggest investors in the firm’s most recent flagship buyout vehicles, according to data from the pension fund and Bloomberg.

The firm’s 31-year private equity returns are 24%, when taking into account fees, the Apollo spokesperson said. Apollo’s latest flagship fund, Fund IX, had a net internal rate of return of 26% as of the first quarter.

Representatives for the CPPIB declined to comment.

The Canada fund has had ongoing conversations with Apollo about corporate governance issues and remains concerned, said the person, without elaborating. The outcome may impact CPPIB’s willingness to invest in Apollo’s next flagship fund, which will likely begin fundraising in late 2022, the person said.

The organization’s review of Apollo is part of a broader assessment of outside managers, said the person. The CPPIB is considering cutting the number of core private equity fund managers to between 35 and 40 from the 50 it currently has.

It’s also seeking to back 10 to 15 up-and-coming managers as part of a new strategy. That would initially involve around $1 billion of commitments, the person said. Any changes would take several years and be made in line with new fundraising opportunities and redemptions from existing holdings.

Apollo has been doing damage control for more than a year, as one revelation after another about Black’s business ties to Epstein spilled into public view, unsettling clients and shareholders. Black paid Epstein at least $158 million for personal tax advice. An independent review found no evidence of wrongdoing by Black. Epstein was found dead in his jail cell in 2019 while awaiting trial.

Even as Apollo tries to turn the page, Black was back in the headlines last week, accused of defamation and gender-motivated violence in a lawsuit filed by a woman with whom he claims he had a consensual affair. Black called the claims in the suit “categorically untrue.”

©2021 Bloomberg L.P.

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