Apollo LPs raise concerns over Black’s relationship with Jeffrey Epstein

The private equity firm has not been proactive in reaching out to LPs but has sought to assuage concerns when contacted, sources said.

Several institutional investors have contacted Apollo Global Management for clarity around the relationship between its founder, chairman and chief executive Leon Black and convicted sex offender Jeffrey Epstein, as well as the broader relationship between Apollo and Epstein, people familiar with the situation told PERE‘s sister publication Private Equity International.

Six LPs that PEI spoke with shared concerns around Epstein’s involvement as a trustee for Black’s foundation, his potential involvement in Apollo’s funds and investment, and his relationship with other senior members of the firm.

On Friday, Black sent a memo to Apollo employees to address the “intense press coverage” of Jeffrey Epstein following his arrest, including stories concerning Epstein’s role as a director of Black’s family foundation.

Black stated that Epstein provided professional services, including tax, estate planning and philanthropic advice, to his family partnership and related family entities. Epstein was one of the Black family foundation’s seven trustees and resigned in 2007. While Form 990 tax filings “mistakenly maintained” his name for several years after his resignation, the state tax filings in Delaware had removed Epstein’s name from the filings after 2007, the memo said.

Delaware filings reviewed by PEI showed Epstein’s name had indeed been removed after 2007.

The memo was later circulated among the LPs that had raised concerns with the firm. Apollo also followed up with calls to LPs, sources said.

Apollo’s real estate investor base contains some large North American public pension plans. The state of Michigan Retirement Systems committed $75 million to Apollo Asia Real Estate Fund, which launched in March 2016 and is targeting a $600 million fundraise, according to PERE data. The opportunistic Apollo US Real Estate Fund II, which closed on $863 million in March 2017, received a $20 million commitment from the San Bernardino County Employees’ Retirement Association.

In an email to PEI, CalPERS spokeswoman Megan White said the pension “takes this issue very seriously”.

“The actions our general partners take, both in professional and private contexts, impact our assessment of which firms we desire as long-term partners,” she said. “We consider any issue, including reputational risk, a serious matter if it impacts a firm’s ability to be successful.”

In an email to PEI, CalSTRS did not comment on this specific case but said that it “continually monitors its holdings, engages companies and collaborates with other institutional investors and partners to monitor and address the risks in the portfolio and develop and implement action plans to mitigate them”.

LPs are becoming less tolerant of partner misbehavior, an investment advisor told PEI.

“With their PE programs subject to public scrutiny, LPs may be less willing than before to look the other way when issues erupt,” the advisor said. “LPs can’t do much about high fees but can pressure GPs in areas like diversity, ESG, corporate governance.”

Apollo stated that none of its present employees, including Josh Harris and Marc Rowan, had any dealings with Epstein. However, John Hannan – who is still listed as a vice-president at the firm – made a $166,667 donation to Epstein’s C.O.U.Q. Foundation in 1999. Black and William Mack – who was CEO of Apollo Real Estate Advisors, but no longer works at the firm – donated similar sums.

A spokesperson for Mack said that he “does not recall ever meeting Jeffrey Epstein in connection with the reported donation from 1999, or at any other time”.

“Mr. Mack has made numerous contributions to a wide variety of foundations over several decades, some of which were arranged by business partners.”

As he dealt with Black’s investments, Epstein visited Apollo’s offices, and reached out to Apollo employees for information on Black’s holdings, according to two sources.

In addition, in an attempt to generate business, Epstein aggressively tried to push his own expertise and tried to interest Rowan in tax planning and estate planning. Rowan did not ultimately end up working with Epstein, a source familiar with his family office told PEI.

Apollo declined to comment.