Apollo prepares for fundraising slowdown as Epstein review gets underway

Apollo Global Management is anticipating a slowdown in fundraising for its drawdown vehicles as limited partners await the outcome of a board review into the relationship between firm co-founder Leon Black and the late Jeffrey Epstein, a convicted sex offender.

“Despite our progress in fundraising … we expected that some investors may look to pause new commitments to Apollo over the near term, at least until the independent review being conducted by the conflicts committee has been completed,” chief financial officer Martin Kelly said on the firm’s third quarter earnings call on Thursday. He added that even if the firm raised no more capital this year, the $18.4 billion in third-party capital raised year-to-date falls between the firm’s typical annual range of $15 billion and $20 billion.

See below for Leon Black’s full statement given on the Apollo Global Management Third Quarter 2020 Results conference call

The Financial Times reported last week that the Pennsylvania Public School Employees’ Retirement System has told Apollo it would not be considering any new investments with the firm following an article in the New York Times that detailed some personal and financial connections between Black and Epstein. The FT report also noted Finnish pension fund Keva and two UK local authority pension funds have raised concerns about Black’s relationship with Epstein and are seeking further information.

Apollo closed on $3.9 billion of third-party capital in Q3, including holding a $1.9 billion first close on its second Hybrid Value fund.

In his opening remarks, co-founder Josh Harris called the conflicts committee review “an important step”. Later in the call, Harris said the firm is “deeply in contact” with its clients regarding the review and recent press reports around Black’s relationship with Epstein.

The Apollo conflicts committee is made up of three independent board directors that have “a fiduciary obligation to shareholders”, Kelly said.

“They are running that process, that review, that will involve email reviews, interviews with people, and so on,” he said.

“I think there’s a hope that it can be completed by the end of the year, but that has the usual asterisk around it, based on how the review proceeds. In the meantime, were continuing to be actively engaged with LPs, we’ve had some capital close just this week, we expect more capital to close in the near term.”

The firm’s private equity portfolio appreciated 8 percent during the quarter and PE assets under management increased 5 percent quarter-on-quarter to $77 billion. Firm-wide assets under management increased almost 5 percent from the second quarter to $433 billion.

Leon Black’s full statement on his relationship with Jeffrey Epstein, given on Apollo Global Management’s third quarter 2020 earnings conference call on Thursday:

Good morning, everyone.

This is Leon Black. I hope you and your families are safe, healthy and doing well despite these extraordinary and difficult times. As I have noted before, this is Apollo’s 31st year of doing business, and I am extremely proud of our team and everything we have accomplished over the past three decades on a foundation of excellence, performance and integrity.

I want to begin today by addressing my prior business relationship with Jeffrey Epstein. By nature, I am a private person, and it runs counter to my nature to speak publicly about personal matters. This has been true ever since living through the press coverage of my father’s suicide 45 years ago. But this matter is now affecting Apollo, which my partners and I spent 30 years building, and it’s also causing deep pain for my family.

Knowing all that I have learned in the past two years about Epstein’s reprehensible and despicable conduct, I deeply regret having had any involvement with him. With the benefit of hindsight, working with him was a horrible mistake on my part. I am not seeking to excuse that decision, but I do believe it may be helpful to convey some relevant facts.

First and most important, Apollo never did any business with Epstein. Neither Epstein nor any company controlled by him ever invested in any funds managed by Apollo.

Second, as I stated in July 2019, Epstein did provide professional services to my family partnership and related family entities involving estate planning, tax, structuring of art entities and philanthropic advice. His work extended over a period of six years from 2012 to 2017, and I paid him millions of dollars annually for that work. There exists substantial documentary support for the services provided. All of Epstein’s advice was vetted by leading law firms, accounting firms and other professional advisors.

Let me be clear: there has never been an allegation by anyone that I engaged in any wrongdoing, because I did not. And any suggestion of blackmail or any other connection to Epstein’s reprehensible conduct is categorically untrue.

Third, I would like to provide some chronological context regarding my decision to do business with Epstein. I first met Epstein around 1996. At the time, Epstein was advising prominent clients on estate tax matters, and his network of relationships included luminaries I respected and admired, including several heads of state, heads of prominent families in finance, a US Treasury Secretary, accomplished business leaders, Nobel laureates, acclaimed academicians and noted philanthropists. Epstein had just been named a trustee of Rockefeller University. He was also a member of both the Council on Foreign Relations and the Trilateral Commission.

I was not aware of Epstein’s criminal conduct until it was publicly reported that Epstein was being investigated by Florida state and federal prosecutors and law enforcement officials, beginning in late 2006. In 2009, after being released from jail, Epstein returned to his previous financial advisory activities, and once again, began working and associating with many prominent individuals spanning the worlds of finance, academia, science, technology, philanthropy, business and government. The distinguished reputations of these individuals gave me misplaced comfort in retaining Epstein’s services in 2012 for my personal estate planning, tax structuring and philanthropic advice.

Like many other people I respected, I decided to give Epstein a second chance. This was a terrible mistake. I wish I could go back in time and change that decision, but I cannot. Had I known any of the facts about Epstein’s sickening and repulsive conduct, which I learned in late 2018, more than a year after I stopped working with him, I never would have had anything to do with him.

I understand and appreciate that concerns remain. For that reason, at last week’s Apollo board meeting, I requested that the board’s conflicts committee, comprised of three independent directors, retain outside counsel to conduct a thorough review of and independently confirm the information I have conveyed about my prior professional dealings with Epstein.

I strongly believe that such an independent review is in the best interests of Apollo, our employees, our shareholders and our LPs. I look forward to the results of the independent review. I believe it will assure all of our stakeholders that they have the relevant facts and demonstrate that everything I have said about my relationship with Epstein is accurate and truthful.

The review is now underway, and I am cooperating fully. Out of respect for that process, I do not intend to provide any further details today or respond to questions concerning the matters under review by the conflicts committee and its counsel. I look forward to the committee completing its work and releasing its conclusions expeditiously.

Finally, I too would like to add my support for Apollo’s 1,500 employees who work tirelessly to achieve the best possible returns on behalf of all our valued investors. I am extremely proud of the extraordinary breadth and depth of talent we have built at the firm, which I believe is the best in the industry. I also greatly appreciate the fortitude they have demonstrated over the past few weeks.

With that I thank you for your patience, and will now turn it over to our senior leadership team for questions and answers to discuss our strong quarterly earnings.