Leon Black’s early exit is latest in Apollo’s refocus on governance

Leon Black has expedited his departure from Apollo Global Management two months after the firm said it was to focus more effort on governance and reputational risk.

In a memo dated Sunday to the alternatives giant’s board of directors, Black, who founded the firm more than three decades ago, said he intended to step down as chief executive and chairman of the board immediately to spend more time with his family and pursue other interests, citing his own health issues and those of his wife, as well as “relentless public attention and media scrutiny” concerning his relationship with deceased convicted sex trafficker Jeffrey Epstein.

Former Securities and Exchange Commission chairman Jay Clayton will replace Black as non-executive chairman. Clayton was appointed in February as Apollo’s lead independent director.

“All the achievements of the past five months, which I have pressed for years, have been exhilarating and gratifying… But the last weeks and months have been deeply trying for me and my family, too,” Black wrote.

Black had said in January that he would step down as CEO on or before his 70th birthday in July while remaining as chairman of the Apollo board. This move followed the conclusion of an investigation conducted by law firm Dechert, which found no evidence that Black or any employee of Apollo was involved with Epstein’s criminal activities.

Co-founder Marc Rowan, who in January was named as Black’s replacement as chief executive, has taken the role effective immediately, according to Sunday’s memo.

Apollo shares gained 1.7 percent in New York as of 10:10am on Monday on the back of the news.

The development comes as Apollo attempts to redefine its position in the alternatives industry. This month the firm said it would merge with insurer Athene, formalising a strategic partnership formed back in 2009 – a deal that Rowan said would make the entities “fully aligned”. This was in part a response to longstanding shareholder concerns that Apollo and Athene are too dependent on each other for earnings and asset growth, and that the arrangement between the firms – under which Apollo manages 100 percent of Athene’s portfolio for a fee – creates unbalanced incentives.

Apollo – a firm better known for eyeing deals where it can gain control of distressed companies by investing in their debt – is also pivoting towards the growing area of impact investing. At Private Equity International‘s Responsible Investment forum this month, Apollo executives outlined the firm’s approach to the strategy, which includes investing in later-stage businesses.

“We think we have a very unique opportunity to serve later-stage companies – to really be able to provide buyout opportunities and potentially carve-outs and platform build-ups,” Lisa Hall, impact chair at Apollo, said on the panel.

Law firm WilmerHale in January concluded a review of Apollo’s reputational risk management and corporate citizenship practices. It made a series of recommendations, including that Apollo conduct periodic background investigations on prominent executives’ outside activities and that it develop processes to allow it to monitor reputational risk at portfolio company-level. Apollo adopted all of the recommendations.

“In recent years… the reputational risks facing Apollo and the entire industry have dramatically increased due to a variety of factors, all of which have resulted in enhanced public scrutiny of our business,” Black wrote in a letter to limited partners at the time.

The importance of governance issues is increasing as an issue LPs are concerned about. According to the latest LP Perspectives 2021 survey, ESG formed a “major” part of investors’ due diligence processes for 38 percent of respondents, compared with 31 percent the previous year.

In Sunday’s memo, Black noted his intentions to return to the firm when possible.

“I will remain Apollo’s single largest shareholder and its biggest supporter, and I hope to return at some point,” Black wrote.

A spokeswoman for Apollo said the firm had no further details to share on in what capacity Black might return or a potential timeline.

– Adam Le contributed to this report