Pension funds are mixed or mum on more cash

When investors in Apollo Global Management learned last week that the firm’s chief executive had paid $158 million to registered sex offender Jeffrey Epstein, they hardly blinked.

After the private equity firm announced the figure, revealed by an outside investigation, its stock rose nearly 7%. That was a far different response from three months ago, when shares plunged over concerns about the financial ties between Epstein and the chief executive, Leon Black.

Apollo soothed investors’ nerves with its announcement that Black, one of its founders, will step down as chief executive and that the firm will expand its board. Black will remain chair.

A more important test could come the next time that Apollo seeks to raise money from the 1,500 pension plans, foundations, sovereign wealth funds and other institutions that invest with it. These limited partners fuel its ability to carry out corporate buyouts, extend loans to companies and make other investments.

So far, their response has been mixed. One of the biggest U.S. public pension plans — the California Public Employees’ Retirement System, or CalPERS — offered only cautious support.

“While we are encouraged by the independent investigation and steps Apollo has taken, the recent disclosures remain concerning, and we will take these matters into consideration as part of our extensive due diligence of any potential future investments,” said Marcie Frost, chief executive of CalPERS, which invests in nine Apollo funds.

But the Florida State Board of Administration, which makes investment decisions for the state’s retirement system, was satisfied.

“The actions the firm has taken with regards to succession and governance underscores Apollo’s commitment to following best practices,” said Ashbel Williams, the board’s chief executive.

Other limited partners have stayed quiet. A halfdozen state pensions either declined to comment or did not respond to requests for comment after the firm announced the results of the outside review. The Pennsylvania Public School Employees’ Retirement System, which had said that it would not invest additional money with Apollo until the review was complete, declined further comment.

On a conference call with analysts after Apollo released quarterly earnings Wednesday, Marc Rowan, the co-founder who will take over as chief executive, said the “vast majority” of investors were satisfied after a “busy week of communication” to discuss the review and governance changes.

“They appreciated the seriousness with which we took the process,” he said.

Some, he acknowledged, may need more time to assess the firm’s response.

Any lingering unease could be squelched by Apollo’s solid performance. Its assets under management rose $22 billion in the last quarter to $455 billion, an indication of the increased value of the companies and other assets. Apollo posted a net income of $434 million, or $1.80 per share, up sharply from $166 million, or 68 cents a share, from a year earlier.