Leon Black cedes Apollo's reins after Epstein sex scandal

New York

IN the end, it was two against one - the ultimate power play by Leon Black, one of Wall Street's ultimate power players.

After months of ugly headlines about his business dealings with notorious sex offender Jeffrey Epstein, Black himself orchestrated a plan to remove the taint from Apollo Global Management - without completely letting go of the company he built.

Black and one of his lieutenants, Marc Rowan, would join forces against the partner they viewed as the wrong pick for the Apollo throne. Mr Rowan would get the keys to the kingdom, while his colleague and rival, Joshua Harris, would gain nothing.

So it was that power inside one of the world's most powerful investment firms is now passing to Mr Rowan, 58, who not long ago seemed an unlikely successor to the mighty Mr Black.

Insiders described the drama late Monday after the board revealed that Mr Black had paid a startling US$158 million for Epstein's advice. Still, the iconic dealmaker will remain chairman, while his preferred partner replaces him as chief executive officer.

The hope among Apollo executives and investors is that the firm is now fully extricated from Mr Black's association with Epstein, whose arrest and subsequent jailhouse death in 2019 sent shock waves well beyond moneyed Manhattan.

Apollo has been distracted doing damage control for more than a year, as one revelation after another about MR Black's business ties to Epstein spilled into public view, unsettling clients and shareholders.

Apollo has long maintained it never hired Epstein for any services, and MR Black, 69, was never accused of any involvement in his criminal activities. Few Apollo investors were eager to see how the firm would fare if it were to lose its longtime leader.

For weeks, a number of its top clients and their advisers have privately suggested Mr Black stay on as chairman, according to people with knowledge of their thinking. The company said on Monday that it is also adding two new directors to its board, addressing governance issues long seen as problematic.

Though Mr Rowan has often worked from the shadows, he's known as the architect behind some of Apollo's most profitable wagers, including the money machine that grew into insurer Athene.

The steady stream of fees paid to Apollo became the envy of Wall Street, and every large private equity firm thereafter has rushed to build an insurance arm.

"I find Marc to be someone who is very forward-looking," said Jagdeep Bachher, chief investment officer of University of California Regents, which has invested with Apollo for 15 years across private equity, infrastructure and private credit. "He is a man of few words and comes across as steady leadership."

The lingering question is whether investors will feel any less comfortable once they read the 22-page report written by law firm Dechert.

"I am extraordinarily proud of the firm I have helped build over the past 30 years and the value we bring to our clients, investors and communities," Mr Black said in its statement on Monday. "Since our IPO in early 2011, we have focused on transforming Apollo and developing the next generation of leadership to position the firm for continued growth for decades to come."

Mr Black has a history of surviving disasters and coming out on top. He founded Apollo in 1990 with partners from Drexel Burnham Lambert, which collapsed in a scandal that led to the conviction of junk-bond king Michael Milken.

The fledgling investment company started buying distressed assets at deep discounts, including Midtown Manhattan office buildings, the luggage maker Samsonite and the owner of Vail resorts. In the aftermath of the 2008 financial crisis, Apollo engineered ways to protect itself even when some of its companies went bankrupt.

Clients, pleased with Apollo's strong returns, have backed the Wall Street giant through high-profile scandals. BLOOMBERG