'Conflict of interest': SEC makes Apollo repay $40M to Pa. and other investors
For charging firms fees before investors got paid
Apollo Global Management, the $186 billion-asset private-equity firm whose bosses include Sixers lead owner Josh Harris, has agreed to pay $53 million to settle Securities and Exchange Commission complaints that the firm reduced returns available to its clients, including the Pennsylvania state pension fund (SERS), by inadequately disclosing fees it collected from companies it bought with their cash before selling them or taking them public. (Revised)
Apollo "failed to adequately disclose the benefits they received, to the detriment of fund investors," when it speeded up "monitoring fees" it collected from firms in 2011-15, the SEC said in its statement. Since it controlled the companies it was collecting those fees from, Apollo faced a "conflict of interest" it wasn't making clear to its clients, SEC said here (see Summary, paragraph I).
Apollo also manages tens of millions of dollars for the Philadelphia city pension system and for PSERS, the state teachers' pension system. PSERS records showed Apollo collected around $8 million in fees for managing more than $300 million in retail, debt and private-equity investments from the school pension system last year alone.
PSERS and Philadelphia officials said their investments weren't affected by the settlement. PSERS spokeswoman Evelyn Williams told me PSERS is represented on the boards of the Apoll0 funds that handle its money and the reps check the fees carefully.
While most of the Apoll0 settlement went to compensate investors for monitoring payments, $2 million of the total was attributed to questionable spending by Apoll0 or its officials, according to the SEC.
The agency said an Apoll0 holding company "failed to disclose" information on an internal loan designed to reduce tax obligations below the already-low 15 percent typically paid on hedge fund and private equity investor income. Apollo's clients should have been told about all such payments and "conflicts of interest," Andrew J. Ceresney, Director of the SEC Enforcement Division, said in the agency's statement.