Side Letter: Epstein’s tax advice to Black, Korean PE indictments – updated

Yachts, planes and artwork are among areas Jeffrey Epstein provided tax advice for Leon Black, and a Korean PE dispute involving some of Asia's biggest names appears to have escalated. Plus: UK take-privates on the up. Here's today's brief, for our valued subscribers only.

They said it

“If we want these disclosures to be truly effective – if we want to see true societal change – they should be embraced by large private companies as well.”

Larry FinkBlackRock’s chairman and chief executive, expresses support for global standards on sustainability reporting, in his 2021 CEO letter

Just happened

More on Leon Black
For any readers who didn’t have the time to read through law firm Dechert’s 22-page report into the relationship between Apollo Global Management chief Leon Black and Jeffrey Epstein, here are some key takeaways:

  • Black believed his payments to Epstein for tax advice were themselves tax-deductible to the tune of 60 cents on the dollar. The realisation that Epstein had “mischaracterised” his fees as being fully tax deductible was one reason why Black eventually severed ties with Epstein in October 2018, the report found.
  • Epstein resigned from Black’s foundation in mid-2007 but due to an “oversight” remained registered as a director there. Following discovery of the error in or around 2013, the Black Family Foundation issued a confirmation of his earlier resignation. Epstein had pled guilty in Florida to counts of procuring a person under the age of 18 for prostitution and solicitation of prostitution in 2008.
  • Epstein created a “toxic” environment at the Black family office – but he got results. He pushed employees to “achieve greater performance than they might have achieved on their own”. Black believed that Epstein provided advice that saved him more than $1 billion and as much as $2 billion.

Read more in our coverage here.

Another blow to Korean PE?
A dispute between a consortium of PE firms and Kyobo Life Insurance appears to have escalated. Key officials from the group, which includes Affinity Equity Partners and IMM Partners, have been indicted by Korean prosecutors for allegedly mispricing shares subject to put options, which enabled the group to sell their position to the company’s chairman, according to The Korea Herald. The group acquired a stake in Kyobo in 2012 and was already in arbitration over an attempt to exercise the put option under the terms of a contract requiring the company to go public by 2015. Baring Private Equity Asia, another member of the consortium, is understood not to have been included in the indictment.

Korean PE has garnered some negative headlines in recent months. The country’s Financial Supervisory Service said in December it had identified dubious and illegal business practices at several domestic firms, per Korea JoongAng Daily. The revelations stem from an investigation launched in July following scandals involving several hedge funds.

Future Fund(s)
Australia’s Future Fund is sitting on a mountain of dry powder. The sovereign wealth fund grew to a record A$171 billion ($132 billion; €109 billion) as of 31 December, of which 19.8 percent is in cash, according to a Tuesday portfolio update. Future Fund made itself highly liquid during the pandemic by offloading a significant chunk of its PE portfolio, a move PEI explored in its October Deep Dive. On a call accompanying the update, chief investment officer Sue Brake said the cash reserves were not as defensive as they may appear, but rather could be considered “dry powder” that provides flexibility.

Lex shoots for the Moon
Online fundaising platform Moonfare just became more liquid. Secondaries giant Lexington Partners plans to acquire fund stakes sold on the platform through a “formal process” held twice a year, per a statement. The Berlin-headquartered company will run a digital bidding round and “endeavour to find the best liquidity solution possible for sellers”. Moonfare has more than 25 funds on the platform, including ones managed by EQTCarlyle Group and Warburg Pincus.


Buy another way
UK take-privates deals have more than tripled as Brexit and the pandemic take their toll on share prices, according to advisory firm BDO. There were 25 public-to-privates in the 12 months to September, up from seven in the preceding period. Deal value also rose 250 percent to £21.3 billion ($29 billion; €24 billion). Find out what’s in store for European take-privates this year here.

Origin-al strategy
London-based Oakley Capital Private Equity has held a final close on its debut lower mid-market fund on €455 million, per a statement. The Origin Fund surpassed its €350 million target after about six months in the market. The vehicle will target growth opportunities in the technology, consumer and education sectors, deploying between €10 million and €50 million per deal.

Dig deeper

Institution: Chicago Teachers’ Pension Fund
Headquarters: Chicago, US
AUM: $11.8 billion
Allocation to alternatives: 14.10%

Chicago Teachers’ Pension Fund has confirmed $105 million-worth of private equity commitments to five vehicles, a contact at the pension informed Private Equity International.

The commitments comprise of $25 million each to KKR North America Fund XIII and Aberdeen Standard Venture Partners XII; $20 million each to NMS Fund IV and Mesirow Financial Private Equity Fund VII-B; and $15 million to Turning Rock Fund II.

The $11.8 billion US public pension has a 5.0 percent target allocation to private equity that currently stands at 4.0 percent.

The pension fund’s recent commitments are to vehicles focused on the financial services, technology, transport, consumer goods, healthcare and business services sectors within Europe and North America.

For more information on CTPF, as well as more than 5,900 other institutions, check out the PEI database.

Today’s letter was prepared by Alex Lynn with Carmela Mendoza and Adam Le.

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– This article was updated to clarify that no officials from Baring Private Equity Asia were included in the indictment.