Leon Black’s recent stumble isn’t exactly from grace. Apollo Global Management’s co-founder and chief executive helped build an investing approach that spawned epithets like “vultures.” His relationship with Jeffrey Epstein, the late sex offender, has invited a new sort of scrutiny, however. It would only be a problem if Black had neglected to make himself replaceable.
Black started Apollo 30 years ago after his previous employer, Drexel Burnham Lambert, collapsed in scandal. He’s an early member of a small club that turned leveraged buyouts into big business using oodles of debt that minted billionaires. The uncomfortable questions now involve how Black used some of his considerable fortune.
He wired at least $50 million to Epstein, a longtime associate, following Epstein’s 2008 imprisonment for soliciting prostitution from a teenage girl and before 2019 sex trafficking allegations against him, the New York Times reported. Blowback has begun. A Pennsylvania pension fund said it was stopping new investments with Apollo, according to Reuters. Others have concerns, too. An independent committee at Apollo is investigating the matter.
If Black’s presence proves troublesome, the firm can carry on just fine without him. The flagship private equity operation is less consequential. Since 2009, U.S. public equity returns have essentially matched those of U.S. buyouts, according to a recent study by the consultancy Bain and Harvard Business School. Apollo doesn’t appear in top rankings by research outfit Preqin of firms with funds consistently in the top quartile. Its 2013 fund, for example, has so far generated an internal rate of return after fees of just 7.2%, according to CalPERS.
Of Apollo’s $400 billion or so under management, about three-quarters is in credit. It’s a business that demands less personal touch, can grow more easily without much extra hiring, and has been powering returns and the firm’s stock price. Apollo also has capable leadership beyond Black’s two younger co-founders, one of whom is on “semi-sabbatical.” Scott Kleinman and James Zelter ascended to be co-presidents in 2018. Departing over the Epstein affair might be an ignominious way for Black to end his run, but also could showcase how he set the firm up to live on without him.