Apollo’s Management Upheaval Is Threatening Flagship $25BN Private Equity Fund
All the tumult in Apollo’s C-suite is starting to impact the firm’s ability to put capital to work. According to a Bloomberg report published Thursday, with former CEO and co-founder Leon Black out the door and fellow billionaire Jeff Harris only a few steps behind, the firm is scrambling to address a technicality that is nevertheless critical to its ability to continue operating.
It’s what’s known as a “Key man” clause. The company’s record-setting $24.7 billion flagship buyout fund came with a clause attached requiring the firm to get permission from investors to continue operating if two of the three “key men” involved with the project were to depart the firm. As it stands, the fund’s ‘key man’ clause stipulates Harris and Black as two of the three men (along with CEO and fellow co-founder Mark Rowan). Both Black and Harris plan to remain on the board, where they each presently enjoy a seat (with Black still serving as chairman).
In fact, the ‘key man’ clause is one of, if not the only, reasons why Harris has agreed to stay on in a reduced capacity until next year: the firm literally can’t afford to lose him until it’s finished with its legal workaround. The situation has “has given him leverage in deciding what role he continues to play at the company,” according to a BBG source.
Without the clause, Harris would probably already be gone. Or at the very least, he likely wouldn’t be allowed to stay on while doing little to no work, according to Bloomberg reports. Earlier this year, Harris tried to push Black out in an attempt to seize the leadership of the firm, a push that reportedly backfired (according to BBG), leading to Harris being passed over for the CEO job, which was allegedly the catalyst for his decision to depart.
The firm has pushed to replace Black with co-President Scott Kleinman, an Apollo veteran, while also weighing whether to push for a different arrangement that would greatly reduce the odds of the clause ever being triggered.
As part of its proposal, the New York-based firm is asking to replace Black with co- President Scott Kleinman, which means a key-person event would be triggered by the departure of Kleinman or Rowan. Apollo, in turn, proposed replacing Kleinman and former senior partner Greg Beard with private-equity co-heads Matt Nord and David Sambur on a separate tier of the provision, which would be triggered if at least four of seven named executives were to leave, the people said.
The clause offers some insight into why Black, who was exposed for paying Epstein more than $100MM over the years, allegedly for tax-related advice.
A lot is riding on Apollo’s efforts to corral the fund’s backers into accepting a new arrangement. Now would be a bad time for the firm to halt investment: as it stands, the record-setting buyout fund (known officially as Apollo Investment Fund IX) is 63% committed and was generating a 26% internal rate of return as of March 31.
Fri, 06/18/2021 – 13:10