Why won’t Apollo explain?

Ex-CalPERS board member Al Villalobos has finally been indicted by the DoJ over the pay-to-play scandal – and yet Apollo still refuses to explain why it continued to use his services even after CalPERS investment officials said it wasn’t necessary, writes Christopher Witkowsky.

Why did Apollo Global Management continue to pay placement agent Al Villalobos millions of dollars in fees to raise capital from the California Public Employees’ Retirement System, when two CalPERS investment officials had apparently told the firm that it didn’t need to go through third parties to solicit commitments from the system?

It’s a question that’s always puzzled me. And it’s become even more puzzling now, in the wake of the US Department of Justice’s announcement in March that it was indicting former CalPERS board member Villalobos and former CalPERS chief executive Federico Buenrostro. The pair stand accused of allegedly forging disclosure letters that Villalobos’ firm ARVCO needed to get paid for helping Apollo raise capital from the system.

Maybe there’s a simple and straightforward answer that would resolve the issue. But Apollo, as is its wont, has always declined to answer any questions on the topic – other than to say it was unaware of any “misconduct” by Villalobos.


The issue first emerged in 2010, when two formerly high-ranking CalPERS private equity officials were deposed as part of Villalobos’s bankruptcy proceedings.

In his deposition, Leon Shahinian, CalPERS’ former head of private equity, insisted that CalPERS was happy for Apollo to approach the retirement system directly, and had told the Leon Black-led firm as much back in 2006. “Part of the reason why I told Leon Black that CalPERS wanted a direct relationship with Apollo was that I did not see a need for there to be a third party involved,” Shahinian said.

Shortly after that 2006 conversation, Shahinian said he talked to Black about the possibility of investing money in a distressed debt fund. “And after I had that initial conversation with Leon Black expressing CalPERS’ interest to invest in a fund like that, I learned that Apollo hired ARVCO to be the placement agent,” Shahinian said. “I guess I didn’t understand why Apollo felt like they needed to hire a placement agent on something where CalPERS had explicitly indicated an interest in investing in.”

Similarly, Joncarlo Mark, a former senior portfolio manager with CalPERS, expressed his concern about Villalobos’ involvement in shopping an Apollo fund to the pension in 2005, according to his deposition. “Apollo was an existing manager with CalPERS … [I] felt it was unnecessary to have Villalobos involved in representing them when we had an existing very large-scale relationship with Apollo,” he said.

Neither Mark nor Shahinian responded to requests for comment for this article.

So what gives? Why did Apollo feel the need to hire ARVCO to solicit these investment officials even after they had already been assured that the system was all ears?

The firm declined to answer the question specifically, sending me this statement instead: “Apollo has always

So what gives? Why did Apollo feel the need to hire ARVCO to solict these investment officials even after they had already been assured that the system was all ears.

followed best practices in handling its placement agent relationships, and was not aware of any misconduct engaged in by Mr. Villalobos during the time that he worked with Apollo.”

The firm also highlighted that the indictment alleges Villalobos “defrauded Apollo”; in other words, that it was a victim of this supposed malfeasance. And of course, it’s worth stressing that Apollo is not and has never been accused of any wrongdoing here.

But regardless of the ins and outs of this particular case, the fact that Apollo used Villalobos as an intermediary with CalPERS has always seemed incongruous to me. This was one of the strongest LP/GP relationships in the industry, stretching all the way back to 1994-1995. Especially after CalPERS acquired a stake in Apollo’s management company in 2007, shouldn’t the firm have felt comfortable enough to approach the retirement system directly? Why did it need to pay a man like Villalobos almost $50 million to solicit capital from what had become one of the firm’s best and longest-standing clients?

If I was an Apollo LP (and fingers crossed I’ll get there someday), I would surely want to know why my trusted GP was paying a guy to do a job that apparently didn’t need doing.

Leon Black

Sadly, answers may never be forthcoming. Apollo, after all, doesn’t have to answer to the media. It only has to explain itself to its LPs – and I can only assume the firm has taken care of that awkward bit of communication. The firm has certainly had no trouble raising funds since the scandal was made public; potential LPs still want to be a part of Apollo’s world, and many of them have been eagerly anticipating the launch of Apollo Fund VIII for a long time (the firm said late last year it was targeting $12 billion for the fund, so it will need all the support it can get).

The irony is that back in 2007, Apollo instituted a policy requiring the agents it worked with to get signed disclosures from the investors they had successfully placed in Apollo funds, confirming that those investors knew Apollo was working with placement agents on fundraising. This was long before placement agent transparency became a routine requirement across the industry.

Apollo led the way back then on placement agent transparency. Now it’s time for the firm to be a bit more transparent about why it needed to keep Villalobos on the pay roll. Intermediaries have an important role to play in brokering LP-GP relationships. It will make life a lot easier for the industry in the long run if all those involved are forthcoming about exactly how.