San Bernardino rescinds Apollo commitment

Citing contractual issues, the San Bernardino County Employees’ Retirement Association’s board rescinded the $25m commitment to Apollo European Principal Finance Fund II it had approved in January.

The San Bernardino County Employees’ Retirement Association rescinded a $25 million commitment to Apollo Global Management’s second European principal finance fund, retirement association chief investment officer Donald Pierce told Private Equity International.

San Bernardino’s board had approved the commitment at the January meeting earlier this year, but was unable to come to terms with Apollo on a contractual matter. Pierce was unable to elaborate, as the decision to rescind was made during the closed portion of the board’s August meeting, which is not open to the public. 

“From time to time we can’t get there with contracting,” he said. “Sometimes things just don’t work out.”

Apollo European Principal Finance Fund II features a 1.75 percent management fee and a deal-by-deal waterfall distribution, according to documents released to Private Equity International by SBCERA. 

The fund, which is targeting €2 billion with a €3 billion hard-cap, has a preferred return of 8 percent, and the structure is such that “Apollo will make up for any losses”, according to the documents.

From time to time we can't get there with contracting. Sometimes things just don't work out.

Donald Pierce

Apollo European Principal Finance Fund II has a four year investment period following its final close. The general partner will invest at least 2.5 percent of total commitments, according to documents. 

Marc Rowan, Joshua Harris, James Zelter and David Abrams are key men on the fund. 

A spokesperson for Apollo did not respond to a request for comment. 

Apollo’s second European principal finance fund will target investments in non-performing loans, focusing specifically on Western Europe, according to SBCERA documents. 

The firm is anticipating between 20 and 25 deals through the fund. The fund may utilise leverage of up to 150 percent of the fund’s total capital, according to SBCERA documents.  

Fund II LPs include the Greenwich Town Retirement System, the Louisiana State Employees’ Retirement System, the Pennsylvania Public School Employees’ Retirement System, the San Francisco Employees’ Retirement System and the Teachers’ Retirement System of Louisiana, according to data provider Private Equity Connect. 

The firm’s previous European Principal Finance Fund, which raised $1.4 billion in 2008, was generating a 2.4 percent net internal rate of return and 1x multiple as of 31 December, according to the California Public Employees’ Retirement System. San Bernardino is also an LP in that vehicle. 

LP appetite for distressed debt and restructuring-focused funds has grown significantly in the wake of the economic crisis. Since 2007, fund managers have raised 109 distressed debt funds, generating $163 billion in commitments, according to Private Equity International research. This includes firms like The Carlyle Group and Oaktree Capital Management, both of which are in the process of raising dedicated vehicles for the sector.