Apollo again says it had no ties to Jeffrey Epstein

Apollo Global Management's top executives reiterated Thursday that the firm did not do business with Jeffrey Epstein but acknowledged that Chairman and CEO Leon Black's business relationship with the financier and registered sex offender could cut into fundraising.

Apollo's conflicts committee is currently conducting a review of Mr. Black's relationship with Mr. Epstein.

Firm executives expect fundraising to slow as investors wait for the findings of an independent review, co-founder Josh Harris said Thursday on a conference call to discuss the company's earnings release. He said that the conflicts committee review is "an important step."

He said that Apollo has "long and durable relationships" with its clients and they are waiting the results of the review.

Right now Apollo is focused on its investment strategies, Mr. Harris said.

Martin Kelly, Apollo's CFO, said in response to an analyst's question, however, that the majority of Apollo investors cannot pull their capital. Only 3% of Apollo's capital can be withdrawn in the next 24 months, Mr. Kelly said. Some 60% of Apollo's $433.1 billion in assets under management as of Sept. 30 is permanent capital, while 90% of assets are permanent in nature with a contractual life of five years or more.

Some investors may pause new investments in the near term until a review has been completed, Mr. Kelly said.

Even with no additional capital raised, Apollo estimates that the firm would produce 7% to 9% revenue growth next year, Mr. Kelly said. That estimate includes a combination of annualized growth in its businesses this year, investment of its $45.8 billion of dry powder and transaction fees similar to this year, he said.

Apollo earned $433.6 million in management fees and $73.4 million in transaction fees in the third quarter, and $1.2 billion in management fees and $172.4 million in transaction fees in the first nine months of 2020. Incentive fees were $1.3 million in the quarter and $21 million in the nine-month period. GAAP net income was $676.1 million for the quarter ended Sept. 30.

Apollo's AUM grew 4.7% from $413.6 billion at the end of the second quarter and 34.2% from $322.7 billion year over year. Mr. Harris attributed the growth largely to transactions and organic growth for Apollo's insurance clients.

In a statement during the call, Mr. Black stressed that it runs counter to his nature to speak about private matters. But after knowing all that he has learned about Mr. Epstein's "despicable conduct," Mr. Black said, "I regret working with him."

He called his relationship with Mr. Epstein a "horrible mistake on my part."

Mr. Black reiterated that neither Mr. Epstein nor any company that he controlled ever invested in any of Apollo's funds. Mr. Epstein did estate planning, tax, and restructuring of art entities and other work for Mr. Black between 2012 and 2017, for which Mr. Black paid him millions of dollars annually.

"There's never been an allegation by anyone that I engaged in any wrongdoing," he said. "Any suggestion of blackmail or any other connection to Epstein's reprehensible conduct is categorically untrue."

It was in 1996 that Mr. Black said he first met Mr. Epstein, who was "advising prominent clients," including heads of state, a U.S. Treasury secretary, Nobel laureates and noted philanthropists.

He said he was not aware of Mr. Epstein's criminal conduct until a 2006 Florida criminal investigation.

After Mr. Epstein was released from jail in 2009 and resumed his advisory business working with "prominent individuals," Mr. Black said he decided to give him a second chance.

"This was a terrible mistake," Mr. Black said. He added that he did not learn of Mr. Epstein's "repulsive conduct" until late 2018.

Mr. Black said he is cooperating fully with the independent review and requested that it confirm information he conveyed about his relationship with Mr. Epstein.

"I believe it will reassure stakeholders that they have the relevant facts and that everything I have said is accurate and truthful," he said.