Apollo Global Management will lower management and other fees it charges to the California Public Employees’ Retirement System by $125 million over the next five years.
In exchange, CalPERS “will also be fully funding all of its existing capital commitments with Apollo”, the pension, the largest in the US, said in a statement. It's not clear if the pension was prepared to not fully fund its existing commitments to Apollo. CalPERS and Apollo did not return calls and emails for comment by press time.
Apollo manages a total of about $4.3 billion for CalPERS, but the fee reductions will take place within the $1.8 billion of sole managed accounts the firm runs for the pension. CalPERS also owns a 9 percent stake in Apollo's management company, which it bought in July 2007 for $600 million – the investment had lost $475 million of its value as of 30 September 2009, according to CalPERS documents.
Apollo and CalPERS have now forged a “strategic relationship”, which is the outcome of a months-long review the $212 billion pension was performing on its relationship with the Leon Black-led firm. The review was sparked after CalPERS discovered last year that Apollo had paid a placement agent, Alfred Villalobos, more than $60 million over several years to solicit the pension for more than $3 billion. Villalobos is a former member of the CalPERS board.
The fee decrease will apply to existing funds that Apollo manages “solely” for CalPERS, as well as any new commitments the pension makes to the firm.
“The benefits we are receiving from Apollo as part of our strategic relationship will substantially enhance returns for our beneficiaries on investment with Apollo,” Joseph Dear, chief investment officer of CalPERS, said in a statement.
Also, Apollo has agreed not to use a placement agent to solicit investment from the firm. The firm agreed to report on a quarterly basis to CalPERS that it has not used a placement agent to secure capital from the pension.
“We recognise that the priorities and strategic interests of CalPERS have evolved under its current leadership, which has sought to lower costs, increase transparency and eliminate the need to use placement agents,” Black said in a statement.
CalPERS is currently performing due diligence on a “new strategic managed account” offered by Apollo and it expects to complete the review in a few months.