When investors at Apollo Global Management learned last week that the company’s chief executive paid $ 158 million to registered sex offender Jeffrey Epstein, they didn’t even blink.
After the private equity firm announced the number, revealed by an outside investigation, its shares rose nearly 7%. That was a very different response from three months ago, when stocks plunged due to concerns about financial ties between Epstein and chief executive Leon Black.
Apollo calmed investor nerves with the announcement that Black, one of its founders, will step down as chief executive and that the company will expand its board. Mr. Black will remain as president.
A more important test may come the next time Apollo seeks to raise money from 1,500 pension plans, foundations, sovereign wealth funds and other institutions that invest with it. These limited partners fuel their ability to make corporate acquisitions, grant loans to companies and make other investments.
So far, their response has been mixed. One of the largest public pension plans in the United States – the California Civil Service Retirement System, or CalPERS – offered only cautious support.
“While we are encouraged by the independent investigation and the measures that Apollo has taken, recent disclosures remain worrying and we will take these issues into account as part of our extensive due diligence on any potential future investments,” said Marcie Frost, the chief executive of CalPERS , which invests in nine Apollo funds.
But the Florida State Board of Directors, which makes investment decisions for the state’s retirement system, was satisfied.
“The actions the company has taken in relation to succession and governance underscore Apollo’s commitment to following best practices,” said Ashbel Williams, chief executive officer.
Other limited partners remained silent. Half a dozen state pensions declined to comment or did not respond to requests after the company announced the results of the external review. The Pennsylvania Public School Employee Retirement System, which had said it would not invest additional money with Apollo until the review was completed, declined to comment further.
In a conference call with analysts after Apollo released its quarterly results on Wednesday, Marc Rowan, the co-founder who will take over as chief executive, said the “vast majority” of investors were satisfied after a “busy week of communication” to discuss o governance review and changes.
“They appreciated the seriousness with which we conducted the process,” he said. Some, he acknowledged, may need more time to assess the company’s response.
Any persistent discomfort could be stifled by Apollo’s solid performance. Its assets under management increased by $ 22 billion in the last quarter, to $ 455 billion, an indication of the increase in the value of companies and other assets. Apollo posted a net profit of $ 434 million, or $ 1.80 per share, a sharp increase from $ 166 million, or 68 cents per share, a year earlier.
Black asked for the review in October, after The New York Times reported that he paid at least $ 50 million to Epstein, who died in a Manhattan cell in 2019 while facing federal sex trafficking charges.
The analysis found no irregularities on the part of Black, saying the money was for “good faith” services, including tax and real estate consultancy. He also said that Black was unaware of Epstein’s predatory conduct and believed that his 2008 plea of guilt in a case involving a teenager was an isolated incident.
Corporate governance experts said it was natural to have lingering doubts about why a billionaire negotiator like Black paid so much money to a man with Epstein’s story.
“The bread and butter of a company like Apollo is its ability to do unmatched investment due diligence, and it’s clear that Leon Black didn’t do that for his own billions of dollars,” said Dennis Kelleher, president of Better Markets, a nonprofit group that supports strict financial regulation.
Apollo’s decision to add four independent seats on the board was a sign that it was trying to change the way it works, said Usha Rodrigues, who teaches corporate law and business ethics at the University of Georgia School of Law.
But Black, 69, will still have a big influence on Apollo.
“I am surprised that he remains in the presidency, but he is a founder,” said Rodrigues.
There is another reason for the company not to distance itself, she said: “Your bravery is what made Apollo a success.”
Mary Walsh contributed reports.