Apollo exec Marc Rowan says he expects up to $20 billion from investors this year as the firm makes a raft of changes post-Jeffrey Epstein investigation
- Apollo’s incoming CEO says investors haven’t fled despite its founder’s ties to Jeffrey Epstein.
- Rowan says “we have not experienced a single redemption.”
- To deal with the crisis, Apollo adopted management and governance changes.
- Visit the Business section of Insider for more stories.
Apollo Global Management’s incoming chief executive Marc Rowan says major fund investors have stood by the firm after revelations that its chief founder and CEO Leon Black had significant financial ties to the convicted sex offender Jeffrey Epstein.
The $450 billion billion alternative-investing firm said in late January that Black would give up his CEO role but remain the chairman of its board after an independent investigation found the billionaire exec had paid Epstein $158 million — more than previously known — for business advice.
The firm initiated other management and governance changes, stating that it would consider abolishing the firm’s dual-class voting shares, which grant Black control of the company’s board, and appoint four independent directors. It said that Rowan, who had been on a semi-sabbatical from the firm, would return and take over the job as chief executive by July.
Rowan suggested those steps had mollified the firm’s large limited partners, a roster that includes several of the country’s biggest pensions and retirement systems. Rowan’s comment echoed statements he had made about support the firm had received from its LPs during an earnings call in early February to discuss the firm’s fourth-quarter performance.
“The vast majority have accepted what we have done,” Rowan said, speaking at a virtual financial services conference hosted on Wednesday by Credit Suisse. “They appreciate the seriousness and transparency, and we’re back to business as usual.”
Rowan acknowledged that some limited partners would need time to see the changes fully implemented before making a decision to continue to place money with Apollo. But he said investors have stood pat.
“To the best of my knowledge we have not experienced a single redemption since the beginning of the year,” Rowan said.
“In fact, I’d go back and say, since the issues in the fourth quarter,” he added.
Last week, the firm said that it had named the recent outgoing chairman of the Securities and Exchange Commission, Jay Clayton, the lead independent director on the board — a position created to counterbalance Black, who will remain the chairman.
The findings of the firm’s independent report — and Black’s continued presence chairing the firm’s board — have struck some corporate governance experts as potential lingering thorns for Apollo’s image.
“Even though an audit didn’t appear to show anything more than financial advice, of course the general public is wondering ‘what?’,” William Klepper, a professor at Columbia’s Business School who focuses on corporate management issues, told Insider.
Charles Elson, a professor at the University of Delaware’s Alfred Lerner College of Business and Economics who focuses on corporate governance, said Black’s continued presence as chairman could make the board’s job “more difficult.”
“Having someone chair the board who was part of management is sort of like overseeing yourself, which is impossible,” Elson said. “If they wanted to make a statement, they would have separated the two cleanly.”
Pension funds assess the situation
An October report by The New York Times revealed that Black, who is 69, had paid Epstein tens of millions of dollars from 2012 to 2017. Epstein died by suicide in 2019, following his indictment on federal sex trafficking charges.
An investigation by the law firm Dechert LLP subsequently commissioned by Apollo and released last month concluded that Black had paid Epstein a total of $158 million for the tax and financial advisory work — a sum some legal and financial experts viewed as exorbitant.
Some of the largest pension funds that invest in Apollo funds have either remained silent on the controversy or have made cautious public statements that leave the door open for future investments with the firm.
“While we are encouraged by the independent investigation and steps Apollo has taken, the recent disclosures remain concerning, and we will take these matters into consideration as part of our extensive due diligence of any potential future investments,” Marcie Frost, the CEO of CalPERS, a California public employee retirement system that has roughly $5 billion under management with Apollo, told the Times earlier this month.
The Public School Employees’ Retirement System, a Pennsylvania pension fund also invested in Apollo funds, told the Times shortly after its October report was published that the pension would “not consider any new investments” with Apollo and that it was “closely following the ongoing legal issues and the newly launched internal Apollo investigation.” A spokesman declined to provide an update when Insider asked about its plans for future investing with the firm now that the internal investigation has been concluded.
In addition to the Dechert investigation, Apollo announced that Black would relinquish his role as CEO by his 70th birthday in July and that it would consider abolishing the firm’s dual-class voting shares, which grant Black control of the company’s board.
The firm also said it was installing independent board members, including Pamela Joyner, the founder of the strategic marketing consulting firm Avid Partners and a trustee emeritus of Black’s alma mater, Dartmouth College, as well as Siddhartha Mukherjee, a physician and scientist.
Rowan to focus on strategy and culture as CEO
Rowan returned from a semi-sabbatical from Apollo to take the job as CEO. His appointment has invited questions over the future role of the third co-founder of the firm, Joshua Harris, a billionaire who co-owns the Philadelphia 76ers and the New Jersey Devils.
In recent months, Harris looked poised to take the top job, as the executive posed for a photo shoot in a splashy Wall Street Journal profile that portrayed him as trying to soften the firm’s sharp-elbowed reputation.
Rowan mentioned Harris only briefly during his comments on Wednesday, and when he stated that he had “two amazing partners” to help him oversee the company’s sprawling operations, he identified them as Jim Zelter and Scott Kleinman, the company’s co-presidents.
Rowan said that while Zelter and Kleinman oversee the day-to-day of Apollo, his own focus will be on strategy and culture.
Rowan rose to prominence on Wall Street by building out Apollo’s insurance asset management business after Apollo partnered with a former AIG executive to create Athene in 2009. Cerebral and academic, Rowan strikes a contrast with Harris, who is better known as a sports enthusiast and prolific dealmaker who was behind some of the firm’s large private equity buyouts, including LyondellBassell.
In his comments on Wednesday afternoon, Rowan described Apollo’s business as flush with capital, as investors seek the firm’s expertise to generate returns amid a low interest-rate environment and a heated stock market.
“If you look at the business broadly over five years, any year where we are not raising a flagship private equity fund, we typically take in $15 to $20 billion of LP capital,” Rowan said. “This year, we will take in $15 to $20 billion of LP capital.”
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