CalPERS officials questioned Apollo's Villalobos ties

A high-ranking CalPERS private equity official allegedly asked Apollo's Leon Black in 2006 to bring investment opportunities directly to him, rather than using 'third parties'.

Two high-ranking investment officials with the California Public Employees’ Retirement System allegedly expressed concerns about a controversial placement agent’s involvement with Apollo Global Management in seeking capital from the pension, according to court documents.

One official, Leon Shahinian, then CalPERS’ private equity chief, made a direct request in 2006 to Apollo head Leon Black that the firm bring investment opportunities straight to the pension, bypassing third parties. Shahinian’s request allegedly fell on deaf ears, as placement agent Alfred Villalobos was shortly after hired by Apollo as a placement agent for another fund, Shahinian said during a 27 July deposition.

“Part of the reason why I told Leon Black that CalPERS wanted a direct relationship with Apollo was that I did not see a need for there to be a third party involved,” Shahinian said, according to a transcript of the deposition.

I guess I didn't understand why Apollo felt like they needed to hire a placement agent on something where CalPERS had explicity indicated an interest in investing in.

Leon Shahinian

A direct relationship between Apollo and CalPERS should not have been difficult to achieve, given that CalPERS owns a 9 percent stake in Apollo's management company, which it bought in July 2007 for $600 million.

Shortly after the 2006 conversation, Shahinian said he talked to Black about the possibility of investing money in a distressed debt fund.

“And after I had that initial conversation with Leon Black expressing CalPERS’ interest to invest in a fund like that, I learned that Apollo hired [Villalobos’ placement firm] ARVCO to be the placement agent,” Shahinian said. “I guess I didn’t understand why Apollo felt like they needed to hire a placement agent on something where CalPERS had explicitly indicated an interest in investing in.”

Another CalPERS investment official, Joncarlo Mark, expressed concerns about Villalobos’ involvement in soliciting an Apollo fund to the pension in 2005, according to his deposition on 29 July.

“Apollo was an existing manager with CalPERS and [I] felt it was unnecessary to have … Villalobos involved in representing them when we had an existing very large scale relationship with Apollo,” Mark said during his deposition.

In his deposition, Mark said he once told an Apollo partner, Marc Rowan, that he was “concerned about the use of Mr. Villalobos as a placement agent in the fund at the time that was being raised”. Mark added that the response he got from Rowan was that “it was Leon Black's decision”. (The court records spell the Apollo partner's name as “Mark Rowen”. Marc Rowan is a managing partner of Apollo).

The depositions were taken as part of Villalobos’ bankruptcy filing in California. In May, California Attorney General Jerry Brown filed a civil suit filed against Villalobos, a former CalPERS board member, for alleged fraud in his dealings with the pension, the biggest in the US with $206 billion in assets. Brown is also suing ARVCO and former CalPERS CEO Federico Buenrostro. Brown, seeking $95 million from Villalobos, must get bankruptcy court’s permission to move forward with the case.

Villalobos has denied wrong-doing and has said he plans to sue CalPERS for $10 million for making false statements about his dealings with the pension.

Shahinian, who has headed the pension’s private equity programme since 2004, was placed on administrative leave in May when Brown filed the suit. He is not named in the suit, though the suit describes a lavish trip Shahinian took to New York to meet Black that was paid for by Villalobos. Following that trip, Shahinian allegedly “recommended” a $700 million investment in Apollo Global Management without disclosing the “all expenses paid” jaunt.

Last year, CalPERS began an investigation into placement fees paid by its managers to third-party markets,

Apollo was an existing manager with CalPERS and [I] felt it was unnecessary to have … Villalobos involved in representing them when we had an existing very large scale relationship with Apollo.

Joncarlo Mark

and also launched a review of its relationship with Apollo. The probes ultimately revealed Apollo payments of at least $50 million to Villalobos over a five-year period for about $3 billion of commitments from the pension.

Apollo and CalPERS announced a “strategic relationship” in April in which the firm agreed to cut management and other fees it charges the pension by $125 million over the next five years. The fee decrease applies to existing funds that Apollo manages “solely” for CalPERS.

At the time, Apollo said: “We believe we at all times have handled our placement agent relationships in an appropriate manner. We are deeply troubled by the alleged activities described in the California Attorney General’s complaint.”

Also, CalPERS CIO Joseph Dear said at the time the strategic partnership “strengthens our long-term partnership with an exceptional asset management firm led by individuals of integrity”.

Apollo and CalPERS did not return requests for comment.