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Leon Black’s Epstein Links Threaten Apollo’s Fundraising

Cambridge Tells Apollo Investors It May Not Recommend Firm

Apollo Global Management Inc. is facing a client revolt that could choke new investments into its funds, as questions persist about co-founder Leon Black’s ties to convicted sex offender Jeffrey Epstein.

Cambridge Associates, an influential consultant to investors including pensions and endowments, may stop recommending Apollo, according to people with knowledge of the matter. Already, the Pennsylvania Public School Employees’ Retirement System has informed Apollo it won’t consider additional investments for now.

The developments follow months of pressure on Apollo from investors seeking more definitive answers about what Chief Executive Officer Black has described as professional ties to Epstein, who was awaiting trial on sex-trafficking charges involving underage girls when he was found dead in jail last year. Interest in their relationship heightened anew last week when the New York Times reported Black had wired at least $50 million to Epstein after his 2008 conviction for soliciting prostitution from a teenage girl.

Leon Black’s Epstein Links Threaten Apollo’s Fundraising

Black and Apollo are now trying to dispel the cloud over the company, which depends on multibillion-dollar fundraisings to fuel its earnings and has already seen its stock take a hit. At Black’s urging this week, a panel of board members hired law firm Dechert LLP to independently examine the 69-year-old’s account of his ties to Epstein, whom Black has said he turned to for financial matters, such as taxes, estate planning and philanthropy.

“Leon requested and welcomes the third-party, independent review,” a spokesperson for Black said in an emailed statement Wednesday. He “is confident that the outcome will put the matter behind Apollo in validating what he has previously communicated publicly.”

Apollo is “firmly committed to transparency,” a company spokesperson said in an email. “Leon has communicated directly with our investors on this issue and we remain in open dialogue.”

There’s been no allegation that Black’s dealings with Epstein broke the law. Representatives for Apollo have repeatedly said Epstein never did business with the firm. Still, the worry among shareholders is that clients may halt inflows of new money.

“Anything they can do that involves outside observers to nip that narrative in the bud in my view will be great for the stock,” said Patrick Davitt, an analyst at Autonomous Research. “I am kind of wondering why they didn’t do this in the first place. This could have gotten the monkey off their back a long time ago.”

The Pennsylvania retirement system said it had planned to have a meeting with Apollo sometime this week, but after the Times published its story on Oct. 12, the pension plan held the meeting by phone the next day. It later suspended new investments. “PSERS is closely following the ongoing legal issues and the newly launched internal Apollo investigation,” it said in a statement without elaborating on its concerns. The Financial Times earlier reported the decision.

Cambridge, which advises on about $410 billion in assets, told clients its deliberations were prompted by lingering questions over Black and Epstein’s ties. A representative for the firm declined to comment.

Some other investors, speaking on the condition they not be named, said they didn’t understand what financial services could warrant $50 million in payments to Epstein. A college dropout, he lacked conventional training in areas such as taxes and estate planning.

Apollo’s stock slumped in the wake of the newspaper’s report, shedding 14% by Tuesday. It jumped as much as 6.3% on Wednesday after the firm disclosed the board’s review. The shares ended the day up 2.6%, and are down 13.5% in 2020.

Clients’ Frustrations

Pension systems, often more exposed to political pressures, are known to be repelled by negative news involving their investment partners. Some have been raising concerns with Apollo for more than a year over the headlines generated by Black and Epstein’s relationship, according to people with knowledge of those talks.

Two investors said they pressed Apollo for more information about their ties but were disappointed with the lack of detail. The firm’s representatives tried to assure some clients by suggesting journalists digging into the situation would already have found wrongdoing if any occurred. Representatives also noted Black wasn’t the only one who had done business with Epstein. Some clients said they were offered the possibility of questioning Black directly.

Gerald O’Hara, an analyst at Jefferies Group covering Apollo’s stock, said he’s been fielding calls from investors nervous that the situation at Apollo could spiral further. But even then, private equity fund clients typically agree to have their money locked up for years. The risk isn’t to existing funds, it’s to Apollo’s ability to attract new money.

“This could certainly have an impact on future fundraising rounds,” O’Hara said. Bloomberg reported in April that the firm aimed to eventually raise $20 billion across several new funds to take advantage of dislocations in credit markets as well as private debt.

Black’s Regrets

The two men had been acquaintances since at least the early 1990s. From time to time, Epstein met with Black at Apollo’s New York offices, and he pitched personal tax strategies to the firm’s executives, Bloomberg has reported.

Apollo conducted an internal review into its involvement with Epstein to ensure that any ties went no further than the firm’s co-founder, people with knowledge of the matter said last year. That included examining emails and records to determine there was no connection between the company and Epstein, one of the people said.

“With the benefit of hindsight -- and knowing everything that has come to light about Mr. Epstein’s despicable conduct more than 15 years ago -- I deeply regret having had any involvement with him,” Black said in a letter to Apollo’s limited partners dated last week.

©2020 Bloomberg L.P.