CalPERS and Apollo Global Management agreed to $125 million in fee reductions over the next five years on funds that Apollo manages solely for the $209.3 billion system.
According to the agreement, released Monday afternoon, the reduction in management and other fees applies to funds Apollo now manages solely for the California Public Employees’ Retirement System, Sacramento, as well as to funds it might manage solely for CalPERS in the future.
Apollo also agreed to provide a quarterly certification that it has not used or paid a placement agent, directly or indirectly, to get a CalPERS commitment. CalPERS will fully fund all of its Apollo commitments, according to a joint announcement from Apollo and CalPERS.
The agreement is subject to formal approval by Apollo and the CalPERS board. It also provides that Apollo CEO Leon Black and Joe Dear, CalPERS’ chief investment officer, may revise the implementation of the contract “as market conditions change and as new investment opportunities present themselves,” according to the agreement.
CalPERS has lost about $420 million in its stake in Apollo Global Management, according to a P&I analysis in December 2009. CalPERS has more than 11% of its private equity exposure in Apollo investments, including its stake in Apollo and commitments to 10 Apollo funds. What’s more, former CalPERS board member Alfred Villalobos and his placement agent firm, ARVCO Financial Ventures, successfully marketed five Apollo funds to CalPERS between 2006 and 2008 and helped sell the pension fund on its now-diminished stake in the private equity firm. Those activities are now being investigated as part of “pay-to-play” inquiries by the SEC and state officials. Sources told Pensions & Investments in December that CalPERS officials were negotiating lower fees.
Charles V. Zehren, Apollo spokesman, and Pat Macht, director of external affairs at CalPERS, could not be reached for immediate comment.
Separately, the CalPERS board on Monday approved a policy change to halt investing in real estate projects that would eliminate rent-regulated apartments, such as New York City’s Stuyvesant Town-Peter Cooper Village.
CalPERS wrote off a $500 million investment with Tishman Speyer Properties and BlackRock after the partnership’s plan to raise rents at Manhattan’s largest apartment complex failed to generate enough income to pay the $3 billion mortgage. The group paid $5.4 billion for Stuyvesant Town-Peter Cooper Village in 2006.
The policy change is intended to head off a more restrictive proposal making its way through the California Legislature. That bill might prevent the fund from investing in affordable housing projects, said Brad Pacheco, a CalPERS spokesman.
Bloomberg contributed to this report.
