The founders of Apollo Global Management, one of the world’s biggest private equity firms, engaged in a brief power struggle this weekend over control of the firm, a rift that opened up after an inquiry revealed that one founder — Apollo’s chief executive and chairman, Leon Black — had paid more than $150 million to the convicted sex offender Jeffrey Epstein.
On Monday, Mr. Black announced his plan to step down as chief executive this year. “I have advised the Apollo board that I will retire as C.E.O. on or before my 70th birthday in July and remain as chairman,” he said in a statement.
The review — ordered by the firm’s board at Mr. Black’s behest in October, after The New York Times detailed at least $75 million in payments — found that Mr. Black had paid Mr. Epstein $158 million in a five-year period ending in 2017. He had also lent Mr. Epstein more than $30 million, only $10 million of which was paid back, the report found.
Mr. Black’s payments effectively bankrolled the lifestyle of Mr. Epstein — whom Mr. Black viewed as a “confirmed bachelor with eclectic tastes,” according to the report — in the years after his 2008 guilty plea in Florida to a prostitution charge involving a teenage girl.
Also, Mr. Black believed that Mr. Epstein had “served his time” for that case and deserved a second chance, the report said. It found there was no evidence that Mr. Black had participated in any of Mr. Epstein’s criminal activities, or that Mr. Epstein had ever introduced Mr. Black to any underage girl.
The details of their financial dealings — Mr. Epstein’s advice was worth perhaps $2 billion in tax savings to Mr. Black, according to the report — created friction between Mr. Black and one of Apollo’s other founders, Joshua Harris, according to three people briefed on the discussions. In recent months, Apollo investors had begun openly questioning the financial ties between Mr. Black and Mr. Epstein, who died in 2019. One of the people said Mr. Harris believed that Mr. Black showed poor judgment in consorting with Mr. Epstein, and that the new findings would further hurt Apollo’s reputation.
Apollo’s board held a videoconference on Sunday to approve the findings of the review, according to two people briefed on the discussions. At the meeting, Mr. Black also announced his plans to step down this year and hand over the chief executive job to Marc Rowan, Apollo’s third founder. Mr. Black intends to remain chairman of the New York firm, which manages $455 billion for institutional investors, including pension plans and sovereign wealth funds.
During a series of meetings on Sunday evening, including with individual board members, Mr. Harris raised objections to Mr. Black’s timeline for stepping down, believing that the reputational threat was so serious that Mr. Black should relinquish the chief executive role without delay, the people said. Mr. Harris also made his case to his co-founders that night in discussions with Apollo’s executive committee — which consists of the three of them.
In the end, Mr. Harris’s objection fell on deaf ears, said the people, who requested anonymity to discuss private deliberations.
Mr. Rowan, who built Apollo’s insurance business but had largely stepped away from the firm’s day-to-day operations in recent years, will take over when Mr. Black steps down.
Mr. Black informed Apollo’s clients of the succession plan and the findings of the review in a letter on Monday evening.
Mr. Harris will continue in his current role as a senior managing director, focused on the firm’s financial performance and working closely with Mr. Rowan, according to the letter, the contents of which were reviewed by The Times. The letter also informed clients of other proposed governance changes, including adding four more independent directors. It also laid out Mr. Black’s plan to donate $200 million to charities that support gender equality and fight sex trafficking.
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The review, conducted by the law firm Dechert, began after The Times reported that Mr. Black had paid Mr. Epstein at least $75 million in the years after his 2008 case in Florida. Mr. Epstein killed himself inside a Manhattan jail cell while facing federal sex-trafficking charges, which were filed amid widespread scrutiny of the plea deal he had reached a decade earlier.
Dechert’s review found that Mr. Epstein had provided “legitimate advice” on trust and estate planning, tax issues and matters related to Mr. Black’s extensive art collection, and other subjects.
Dechert said the value of the tax savings to Mr. Black was at least $1 billion and possibly as much as $2 billion. Though at the same time, the law firm noted, Mr. Epstein also “would seek to take credit for good ideas, regardless of his level of involvement, which likely was intended to bolster his perceived value to Black.”
The relationship began to deteriorate in 2016, the report said, amid a payment dispute over tens of millions of dollars in fees. The two men did not communicate after 2018, according to the review.
Mr. Epstein did not invest in any Apollo-managed funds, according to the report, but it found that his companies had bought more than 200,000 shares in the private equity firm’s initial public offering and held that stake until at least September 2019 — a month after Mr. Epstein died.
Many of Apollo’s biggest clients — including major pension funds, charitable foundations and sovereign wealth funds — had been awaiting the results of the report.
The $63 billion Pennsylvania Public School Employees’ Retirement System had said it would not invest any additional money with Apollo until the review was complete. CalPERS — the California Public Employees’ Retirement System, one of Apollo’s biggest clients — had said it expected its outside investment managers to follow the fund’s own values. Other pension funds — in Texas, Illinois and Ontario — also said they would be watching the investigation closely.
In his three-page letter to investors on Monday, Mr. Black acknowledged that “heightened media scrutiny of Apollo has generated unwelcome attention” for those investors. “I personally regret any distraction that may have caused,” he wrote. Mr. Black said Apollo had hired a law firm, WilmerHale, to look into its reputational risk management practices and suggest improvements.
Apollo grew out of the ashes of Drexel Burnham Lambert, the investment bank that collapsed in 1990 amid a trading investigation that sent the since-pardoned Michael Milken to prison.
Although Mr. Black started Apollo with his younger partners — Mr. Harris is 56 and Mr. Rowan 58 — he has been long been the face and voice of the firm.
In building Apollo into a global financial powerhouse, Mr. Black has made himself and his co-founders immensely rich: His personal fortune is estimated at more than $8 billion, and he owns a massive private art collection — including a version of Edvard Munch’s “The Scream” — and is the chairman of the Museum of Modern Art.
But when Apollo held its most recent earnings call in late October, there were already signs his dealings with Mr. Epstein were causing ripples, both in the firm and among investors. In an unusual move, Mr. Black read a brief statement about the Epstein matter before handing over the meeting to Mr. Harris and Mr. Rowan.
Apollo has long specialized in buying up distressed companies and retooling them, but it also boasts large credit, infrastructure and real estate businesses. Mr. Rowan was the driving force behind Apollo’s thriving insurance business and its insurance subsidiary, Athene Holding, which has fueled the Wall Street’s firm earnings in recent years.
At one time, both Mr. Rowan and Mr. Harris were seen as the heirs apparent to Mr. Black. But with Mr. Rowan’s decision to pull back from day-to-day affairs, many on Wall Street assumed the job would fall to Mr. Harris, who has the run the nuts and bolts of Apollo’s vast buyout operation.
Mr. Harris, who is an owner of the Philadelphia 76rs basketball team and the New Jersey Devils hockey team, said he would “fully support” Mr. Rowan as chief executive. “I will focus on expanding our global search for investor returns, which is at the core of our success,” he said in a statement.
As the only three members of Apollo’s executive committee, the founders hold considerable sway over the company. As of now, the decision to name Mr. Rowan as Mr. Black’s successor does not need approval of the company’s board. And all three men — who have much of their net worth tied up in the company — have a vested interest in the stability of the firm.
