Side Letter: Black’s Epstein memo, Australia’s next-gen GPs and hurdle rates

Apollo clarifies the Epstein connection; Australia's next-gen GPs; and the future of hurdle rates. Here’s today's brief, for our valued subscribers only.

Just happened

Apollo’s Epstein connection

Several LPs have reached out to Apollo Global Management to get clarity on Leon Black’s (pictured) – and by extension Apollo’s – relationship with convicted sex offender Jeffrey Epstein. Apollo sent concerned LPs an internal memo Black wrote to all employees addressing the “intense press coverage” of Epstein, including stories concerning Epstein’s role as a director of Black’s family foundation, and followed up with a phone call.

Apollo may have cause to worry. It has a large investor base – more than 30 North American LPs invested in its $24.7 billion Fund IX – and LPs seem to be getting less tolerant of misbehaviour. “With their PE programs subject to public scrutiny, LPs may be less willing than before to look the other way when issues erupt,” an investment advisor told us.

Here’s what we know:

  • Delaware state tax filings show Epstein was not part of Black’s family foundation after he resigned in 2007. He was still listed on Form 990 tax filings in the years post-2007.
  • Epstein had access to and tried to push his tax and estate planning services to other senior members at the firm. Many didn’t bite.
  • Epstein has not invested in Apollo funds or its portfolio companies.
  • Per Apollo, none of its present employees, including Josh Harris and Marc Rowan, had any dealings with Epstein.

Apollo’s second-quarter earnings call is due to take place this morning. It’ll be interesting to see whether this issue comes up. We’ll keep you posted.

New faces down under

Deft handling of succession is a challenge for any private equity market, but Australia offers a particularly striking example: as some of the country’s old guard have struggled to navigate leadership transitions, a new wave of promising shops has emerged. In our annual Australia Special, we take a look at five fresh firms looking to make their mark on the country’s private equity scene, including tech specialist Potentia Capital and deal-by-deal manager Liverpool Partners.

Hurdle rate

The share of PE firms that removed hurdle rates has doubled to 22.6 percent in 2019, from 11.2 percent in the previous year, a report from law firm MJ Hudson has found. Large buyout shops – especially those with strong track records – are winning this particular fight, industry participants tell us. As Hamilton Lane’s head of EMEA Jim Strang puts it, in today’s market environment, “LPs’ ability to push back – no matter how much they try – is reasonably limited.”


No shine off PE returns. Private equity remained the best performer for public pension plans, returning a median annualised return of 10.2 percent in 2018, according to American Investment Council’s latest report. Almost 91 percent of the 165 US pension plans surveyed had private equity exposure, and Massachusetts Pension Reserves Investment Trust’s PE portfolio retained the top position with 13.37 percent. “There’s the higher return potential, but the real pull is that private equity offers investors far greater insight and hands-on influence than what you get with public markets,” Arizona Public Safety Personnel Retirement System’s chief investment officer Mark Steed said. His pension plan’s 11.36 percent PE return propelled it to number five in the ranking.

Mega-deal envy. Blackstone’s Refinitiv deal, a circa $20 billion buyout that harked back to the pre-crisis era (and was honoured in our 2018 awards), should return double the firm’s invested capital in a little under 24 months, notes the Financial Times (paywall), turning a roughly $4 billion bet into $8 billion for BCP VII and certain co-inventors. Earlier this year Blackstone’s global head of PE Joe Baratta told PEI how the firm’s scale – and its need to deploy a large amount of capital – is a competitive advantage. Well, here’s his proof point.

Dig deeper

Michigan money movements. University of Michigan has announced $88 million of commitments, including $58 million to Altor Fund V. Here’s a breakdown of the $12.1 billion US university endowment’s total investment portfolio. For more information on UMich, as well as more than 6,700 other institutions, check out the PEI database.

He said it

“Senior management rode roughshod over their compliance function and the misconduct and deceit were pervasive and persistent”

The Dubai Financial Services Authority fines Abraaj Group $314.6 million (paywall) for misusing investor funds and providing misleading information

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Today’s letter was prepared by Toby Mitchenall, Isobel MarkhamCarmela Mendoza and Preeti Singh.

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