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. 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 Rowan, 58, who not long ago seemed an unlikely successor to the mighty Leon Black. Insiders, speaking on the condition they not be named, described the drama late Monday after the board revealed that Black had paid a startling $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 the firm’s executives and investors is that it is now fully extricated from Black’s tabloid-worthy 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 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 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 Black stay on as chairman, according to people with knowledge of their thinking. The company said on Monday that it’s also adding two new directors to its board, addressing governance issues long seen as problematic.
Though 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 business’s 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.
Spokesmen for the executives declined to comment beyond Apollo’s public statements.
“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,” Black said in its statement 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.”
Surviving Disasters
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 including two U.S. Securities and Exchange Commission investigations. Since 2010, Apollo’s assets have soared more than sixfold, reaching $433 billion at the end of September.
Harris, meanwhile, worked to become a more public face for the company, speaking frequently at conferences and in the media. Behind the scenes, he expressed an interest in potentially taking over as CEO, according to people familiar with the matter. But in the past few years, Black repeatedly asked Rowan to consider assuming the mantle. Black viewed Rowan as a genius who could continue growing Apollo and its value.
Instead, Rowan tried to take a break from the grind, and in July the firm announced he would be going on a “semi-sabbatical.” Yet that became something of a joke around Apollo, because rather than playing golf and relaxing in the Hamptons, where he owns real estate and high-end eateries, Rowan ended up working around the clock to close deals that brought in billions more in assets.
A few months ago, he finally agreed to Black’s entreaties to eventually succeed him as CEO.
Harris’s Concerns
In mid-October, a report in the New York Times described Black’s extensive use of Epstein for help with financial matters. Black asked the board to commission a review. In the meantime, several public pension plans put commitments to the firm on hold, a move that threatened to slow fundraising.
As the review was finished, Harris expressed concerns that the extent and scale of Black’s financial relationship with Apollo could further damage the firm’s reputation and he advocated that Black should immediately relinquish both his chairman and CEO posts. He made his case directly to co-founders Black and Rowan, and to at least one board member, the people said.
Ultimately, it was too late. During a conference call on Sunday, it became clear that Black and Rowan would vote to install Rowan as CEO. Harris, despite his concerns about Black, backed the move. The executive committee — comprised of that trio — and Apollo’s board members agreed to the decision unanimously, Apollo said on Monday.
“I am pleased that Marc will return and fully support him as CEO,” Harris said in the company’s statement.
The company also announced moves that will further dilute Black’s hold over the business. Two independent directors will join the board, and it will adopt a “one share, one vote” structure, eliminating stock classes that gave the founders extra voting powers.
With the review now public, Apollo hopes to remove the distraction and return to business as usual. The firm doesn’t expect the actions by pension plans to have a lasting impact on its business, which is increasingly reliant on permanent capital and diversified from leveraged buyouts.
Still, some investors will wait to see whether more issues related to Black’s Epstein ties arise before pledging new money, said Gerald O’Hara, an analyst at Jefferies Group covering Apollo’s stock.
“You need to show good citizenship for a certain period of time,” O’Hara said in an interview.
