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Apollo’s Rowan: Response to Epstein investigation may not satisfy every investor

The 'vast majority' of Apollo's 1,500 LPs were satisfied with the firm's recent leadership and governance changes, Marc Rowan said on the firm's Q4 earnings call Wednesday.

Apollo Global Management has admitted that its response to an investigation around Leon Black’s relationship with convicted sex offender Jeffrey Epstein may not satisfy the firm’s entire investor base.

Co-founder and soon-to-be chief executive Marc Rowan said on the firm’s Q4 2020 earnings call on Wednesday that the “vast majority” of Apollo’s limited partners, as well as their advisors and consultants, were satisfied with the governance and leadership changes made following a review by law firm Dechert into Black’s Epstein ties.

“As we expected, a smaller portion of our investors will need time to consider these events and the changes we are implementing,” Rowan said. “And in some instances they may actually want to see how these changes unfold. We realise that we may not be able to satisfy each and every of more than our […] 1,500 institutional investors, but we have made tremendous progress.”

Apollo said last month that Black would step down from the role of chief executive on or before the end of July, while co-presidents Scott Kleinman and Jim Zelter, among others, would join the board. The firm plans to make its board two-thirds independent over the near term and appoint a lead independent director. It has also pledged to increase its focus on reputational risk and governance.

Dechert concluded its review into the relationship between Apollo and Epstein last month and published its findings in a 22-page review. The report, which found no relationship between the two, noted that Black believed the tax advice he received from Epstein was deductible to the tune of 60 cents on the dollar and that he believed Epstein’s advice saved him as much as $2 billion.

Apollo said in October that it expected a slowdown in fundraising for its drawdown vehicles as LPs awaited the outcome of Dechert’s review.

The firm raised $124 billion across all asset classes last year, of which $22 billion came in Q4, according to its earnings statement. Its private equity assets under management rose 5 percent in the fourth quarter to $80.7 billion and its funds appreciated 13 percent.

“We expect third-party fundraising to build significantly now that we have addressed these issues,” Rowan noted on Wednesday’s call. “I believe in the first quarter we will see some of that pause simply come through and then we will get stronger every day.”

Apollo deployed $2.1 billion of private equity in the fourth quarter and $12.6 billion in 2020. Kleinman said on the call that it expects above-average deployment for private equity this year based on its pipeline.

The firm also raised $817 million via an initial public offering for its first special purpose acquisition company, Apollo Strategic Growth Capital, in the quarter. Similar to Hamilton Lane, which disclosed plans this week to launch a dedicated SPAC business line, Apollo is gearing up to become more active in this area.

“We have several more in the pipeline and see it as a real opportunity to add to the asset category footprint that we have,” Kleinman said. “And I think, you’ll continue to see that be an increasing part of how we approach the market across the spectrum of risk and return.”