Less than 24 hours after it was reported that Apollo co-founder Leon Black's relationship with Jeffrey Epstein would be reviewed by a group of Apollo's independent board members after it emerged that Black had paid Epstein $50 million for various "services" after his conviction for soliciting sex with a minor, the first domino has fallen: according to the FT, one of the biggest US public pension funds - The Pennsylvania Public School Employees’ Retirement System - has frozen new investments with Apollo Global Management, amid "growing concerns about founder Leon Black’s relationship with the late paedophile Jeffrey Epstein take a toll on the $414bn private equity group."
"After that phone conversation, PSERS’ Investment team informed Apollo that it will not consider any new investments at this time," PSERS told the Financial Times.
According to PitchBook, PSERS is among the biggest backers of private equity funds in the world and contributed $225 million to the New York firm’s latest buyout vehicle; at this moment, PSERS has less than $1 billion invested with the private equity group.
As we warned yesterday, it is only a matter of time before investors shun the massive PE fund, and the PSERS move underscores this point, demonstrating how the reputational crisis surrounding Black’s relationship with Epstein "is becoming a financial risk for Apollo, which manages $414 billion for investors that include many of the world’s largest pensions and sovereign wealth funds."
In a statement, Apollo said it was "firmly committed to transparency" adding that "Leon has communicated directly with our investors on this issue and we remain in open dialogue." And while it is true that Black sent out a letter to investors last week seeking to explain his relationship with Epstein, clearly questions remained. This is what we said yesterday:
One week ago, we asked a simple question in response to a NYT report that billionaire Leon Black, one of the brightest financial minds of this generation who is surrounded 24/7 by experts and specialists - and more importantly, his own paid employees - in absolutely every area of finance, paid "suicided" child molester and longtime pal Jeffrey Epstein $50 million after the deceased financier got out of prison for pedophilia.
Because the provided answer was ridiculous: according to Bloomberg, "For decades billionaire Leon Black turned to Jeffrey Epstein for financial advice." But why would a billionaire financier need Epstein, who was through and through clueless about any sophisticated areas of finance, need to pay Epstein tens of millions for advice?
Neither did the answer given by Black's spokeswoman make any sense: Black received “personal trusts and estates planning advice as well as family office philanthropy and investment services” from Epstein between 2012 and 2017. Wait... Black couldn't get all of that for free from the the world's biggest private equity company which just so happens he co-founded? Instead, he just had to pay Jeffrey $50 million.
"It is true that I paid Mr Epstein millions of dollars annually for his work," said Black in a letter responding to the Times report. "It also is worth noting that all of Mr Epstein’s advice was vetted by leading auditors, law firms and other professional advisors" Black added in the process throwing virtually everyone under the bus, and adding that he had 'once' picnicked on Epstein's private island with his family, and that he visited the dead pedophile 'from time to time' at his Manhattan townhouse.
Clearly, at least PSERS is also seeking an answer as to "why" Black continued to pay millions to Epstein year after year. And it is likely that now that the pension fund has made a "virtue signaling" example, other investors will promptly follow suit:
The abrupt halt to investment from PSERS comes as three other backers of Apollo’s private equity funds have raised concerns about the relationship between Mr Black and Epstein, after Mr Black confirmed that he had paid Epstein millions of dollars per year.
The investors, all public pension funds, say they are either already in contact with Apollo or are planning to be, as they seek further information about the links between the two men.
One fund which is appears the verge of following PSERS is Finnish pension fund Keva, whose head of alternative investments Markus Pauli said that "as a responsible investor we take ESG [environmental, social and governance] . . . seriously." Keva which manages about €56BN and has committed $225MM to Apollo’s most recent private equity fund.
“We continue to follow the topic and are in dialogue with Apollo,” Pauli said, adding that while Keva generally tried to influence buyout groups “in a positive way” when it had concerns, it could sell its stake in funds “if the manager despite investors’ feedback does not take necessary actions to fix the situation”. He welcomed the outside probe.
The FT also noted that two UK local authority pension funds, the £7bn Essex Pension Fund and the £8.2bn South Yorkshire Pensions Authority, have also voiced concerns about Mr Black’s payments to Epstein, which were first reported by The New York Times last week.
“Clearly it raises some questions in terms of the timings and nature of the relationship and we will follow those up with the fund manager as part of our ongoing liaison,” said George Graham, director of the SYPA. He also welcomed the law firm’s review.
“We will continue to engage with our private equity manager [Hamilton Lane] to understand what steps the general partners [Apollo] intend to take,” said Essex Pension Fund. A Hamilton Lane spokeswoman declined to comment on its conversations with pension funds and Apollo on the subject.
Separately, the FT also reported that on Tuesday Apollo hired an outside law firm to conduct a probe into his links to Epstein — a move that the firm said was urged by Black “in light of continued attention” to the ties between the two men.