Nobody Makes Money Like Leon Black
Caleb Melby
24-30 minutes
Leon Black, the most feared man in the most aggressive realm of finance, wants you to know he’s misunderstood. Not about the feared part—that much is indisputable.
Black built his company, Apollo Global Management Inc., by buying struggling businesses with huge piles of debt at bargain-basement prices, imposing austerity measures on the staff, and extracting huge dividend payments and management fees. Many of Apollo’s most lucrative deals have been from companies other firms wouldn’t go near, and Black is concerned this has left him with a reputation for taking on inordinate risk. “We’ve actually made our most money during recessions,” he says, growing agitated. As his face reddens over his blue Hermès tie, his incongruously soft voice rises by an octave, and he stabs a pile of printed-out emails with an eraserless No. 2 pencil. “Everybody else is running for the doors, and we’re backing up the trucks.”
The most recent recession, triggered by the 2008 financial crisis, created an unprecedented opportunity for private equity firms, and few have taken better advantage than Apollo, Wall Street’s apex predator. During the past 10 years, its assets grew sixfold, to more than $320 billion. Black has amassed a personal fortune of $9.5 billion. Now 68, he became chairman of New York’s Museum of Modern Art in 2018, a coronation of sorts among the wealthiest of the wealthy. His office, which is guarded by a display of antique French long guns and has spectacular views of Central Park, is just above that of Henry Kravis, the most infamous corporate raider of the 1980s.
Who bears the risk in situations where Black is involved is an interesting question. A private equity takeover can involve deep payroll cuts, massive asset sell-offs, and taking on dangerous levels of debt. The process can mortally wound a company and trigger zero-sum fights over the corpse. Even if you don’t know Apollo, you know its targets: Caesars casinos, Claire’s jewelry stores, Linens ’n Things, all purchased just before the financial crisis and driven to bankruptcy under Black’s watch. That’s not always the outcome, but when it is, creditors are on the hook. Apollo, known for guarding its hoard, usually manages to walk away richer.
In this way, yes, Apollo is one of the least risky bets out there. But widen the lens, and you’ll find that Apollo and Black have spent decades skating on the edges of other people’s catastrophes. Those with money in Apollo funds were given a disturbing reminder of this in July when Jeffrey Epstein, who’d served on the board of Black’s family foundation and been known to visit Apollo’s offices pitching personal tax strategies, was arrested on federal sex-trafficking charges. Black’s deputies at Apollo scrambled to distance themselves. (Via a spokesman, Black and his co-founders deny this.) Some of the firm’s biggest investors quietly wondered whether their money was still in good hands. Lawyers combed through internal emails and other documents to ensure that Epstein hadn’t invested in Apollo funds. (The firm maintains he didn’t.)
After Epstein was found dead in his Manhattan jail cell a month later, former Apollo employees joked darkly that his death had made Black’s life easier. A fellow billionaire in his social circle, one of dozens of people interviewed by Bloomberg Businessweek, said the business community would have been far more apprehensive about doing deals with Black if Epstein were still alive. Black, who’s succeeded in shielding himself from the press for years but gave a rare interview to Businessweek, declined to comment for this article about his relationship with Epstein. He’s said in the past, however, that he occasionally turned to Epstein on financial matters such as taxes, estate planning, and philanthropy.
If anything has made Apollo seemingly risk-immune, it’s this ability of Black’s to emerge clean from a quagmire. It’s a pattern that’s defined his career: One way or another, Black always wins. That’s not what he’s talking about when he says he’s been misunderstood, of course. But if you’re an investor deciding where to put your money, it’s good to know. “From a risk/reward point of view,” he says, “we have the best game in town.”
Data: Compiled by Bloomberg
Black didn’t plan to go into finance. As a child he helped his mother, a painter, assess which of her watercolors were worth framing. At Dartmouth College, from which he graduated in 1973, he was a Shakespeare devotee and philosophy major. It was only at the behest of his father, Eli, chief executive officer of United Brands Co., that he attended Harvard Business School.
One morning during Black’s second year there, his father arrived at work, used his briefcase to smash the window of his 44th floor office, and jumped to his death. A front-page New York Times story described him hurtling toward Park Avenue in a blue suit, horrifying drivers, and his briefcase bouncing toward a nearby post office loading ramp. Following an investigation, United Brands said Black had authorized a payment to a Honduran official as the company sought to reduce export taxes on its Chiquita bananas.
“My father was God to me. And then he committed suicide. Suicides, you know, aren’t usually committed by gods,” Black says. “It took me years of therapy to get over that and to figure out where he ended and I began.”
Black had once entertained becoming a writer or filmmaker, but found himself working at accounting firm Peat Marwick (the future KPMG) and with the publisher of Boardroom Reports. He interviewed at Lehman Brothers, only to be told he didn’t have the brains or personality to succeed on Wall Street.
Then a family friend introduced him to Fred Joseph, a rising star at Drexel Burnham Lambert Inc., who recruited Black in 1977 to join what was emerging as the most exciting and lucrative investment bank on Wall Street. Many of his Drexel colleagues from that time remember Black as a floppy-haired, intemperate kid who was prone to outbursts and frequently played hooky. (Black contests this characterization, saying he was shy and didn’t like getting up early.) But he was a hit with the people who mattered: Joseph, who became a father figure, and the firm’s driving force, Michael Milken. Within four years, Black made partner.
Milken’s bankers helped clients find ripe takeover targets and sold packages of debt to finance the deals. The bonds had to have sky-high interest rates to entice Wall Street buyers, but the corporate raiders didn’t mind: It was the targets, not them, who’d have to make good on the debt. Milken’s shop became the envy of Wall Street’s more conservative firms, whose denizens dubbed these bonds “junk.” Black still bristles at the word. “We were never accepted by the Goldmans and the Morgans and the Kidder Peabodys and the First Bostons,” he says. “What Fred wanted to do was to put together a team who had that desire to prove themselves—us against the world.”
Black was canny at building relationships with clients, who trusted him to go to the mat for them, even within the firm. “He’d be calling me at 10 o’clock at night New York time, 7 in California,” recalls Peter Ackerman, who worked with Black from Drexel’s office in Beverly Hills. “I had two little boys, we’d be sitting down to dinner. Eventually my wife had to tell him not to call between 7 and 8.” Yelling was common, but Ackerman says he didn’t hold it against Black. “To me it’s not about how hot you get, it’s about how quickly you cool down,” he says. In difficult transactions, Black “could easily envision the endgame,” Ackerman says. “That’s a rare skill.”
Black’s night-owl tendencies made him well-suited to handling one of Drexel’s most important clients, Carl Icahn, who preferred doing business past midnight. When, in 1986, a Drexel client pleaded guilty to insider trading and agreed to aid investigators looking into Milken, it threw the firm into a yearslong legal battle that culminated in Drexel pleading guilty to six felony counts and agreeing to pay more than $650 million in penalties and fines. As the tumult unfolded, many employees saw their bonuses slashed. But Black, keeper of its most important clients, including the cantankerous Icahn, was now invaluable. In the months before Drexel declared bankruptcy in 1990, Black received the biggest bonus at the firm that year: $16.6 million. Joseph was banned for life from serving as the head of an investment company, and Milken served 22 months in prison. Black was never accused of wrongdoing.
Now worth $60 million, Black weighed taking a break, recalls Icahn, who’d become a mentor. “He was disheartened about Milken and all the problems,” Icahn says. “I told him he was making a big mistake.”
Soon after, executives of the French bank Crédit Lyonnais reached out to Black about teaming up on a venture that would try to replicate Drexel’s success. The Drexel bankruptcy coincided almost perfectly with a credit crunch, and Black was frank with his potential backers: There was no mergers-and-acquisitions market anymore. Instead, he said, they should go into the business of buying the loans that had been piled on now-troubled companies. Drexel had put together some of the debt packages, and Black knew which companies were worth owning a piece of.
He and Crédit Lyonnais went big, buying up more than $6 billion of bonds held by insurer Executive Life, which had been among Milken’s biggest clients. After prices tanked, California’s insurance regulator was forced to seize the company to protect policyholders at risk of losing their coverage. California saw a pile of undifferentiated junk, but Black knew where the treasures were. He offered to make it easy for the state: He’d buy the entire debt portfolio for $3.25 billion.
The deal sparked at least a decade of litigation, after it was later revealed that Crédit Lyonnais, owned by the French government, also bought Executive Life through a series of entities, a violation of California law preventing foreign governments from investing in domestic insurers. In 2006 the bank’s former CEO pleaded guilty to lying to U.S. regulators, and California collected more than $900 million from lawsuits. No evidence surfaced that Black had done anything illegal.
The market quickly recovered, and within two years of when Black bought up the debt, his investment was worth more than $5 billion. Says Gary Fontana, a trial lawyer hired to win back funds for Executive Life policyholders, “That’s the thing that really got Apollo rocketing off.”
Black founded Apollo in 1990 with five partners from Drexel. “We were sort of comrades in arms, having been through all of that,” he recalls. They were still the same guys who’d thrived in Drexel’s cutthroat culture. But this time they wanted to do the deals, not just finance them.
Looking to avoid screwing up their second chance, Black and his compatriots began buying up distressed assets at a deep discount, which they hoped would limit their downside and eventually deliver outsize returns. There were Midtown Manhattan office buildings, the luggage maker Samsonite, the owner of Vail resorts—they even took a trip to Moscow with Donald Trump in the depths of his mid-1990s bankruptcy doldrums.
Aided by the Executive Life deal and other well-timed investments, Apollo’s business soared, but it wasn’t enough to keep Black’s founding partners around, and by the early 2000s only one of them remained. Black was preparing to sell shares to two major investors—the California Public Employees’ Retirement System, known as CalPERS, and the Abu Dhabi Investment Authority—as a way to raise money without having to go through an initial public offering. Black at that point owned most of the business, and the transactions and subsequent payouts, totaling more than $2 billion, would put him into a whole new stratosphere of wealth.
Among his many deputies were two who’d proved themselves particularly valuable: Josh Harris, an aggressive dealmaker who impressed Black with big profit margins, and Marc Rowan, a brilliant financial engineer who had a knack for creative problem-solving. A dominant personality, Black has never been keen on sharing power, and for years he’d batted away many of those who came to him asking for a slice of the company. But not Rowan and Harris. Not only did he cut them in on the deal, but when Apollo finally went public in 2011, he listed Rowan and Harris as co-founders.
The arrangement has vexed Black ever since, say several people who’ve worked with him over the years. Black concedes that it took him more than a decade to start sharing decision-making authority. “He wasn’t going to be able to do it by himself, so Leon shared the pot with the other guys,” says Gary Winnick, who worked with Black at Drexel and sits with him on MoMA’s board. “That’s how it works. Give me equity, pay me enough money, you get loyalty.”
At Apollo, loyalty is a credo. Some current and former employees compare their early days there to pledging a fraternity. At the top is Uncle Leon, whose hot temper is leavened by an avuncular awkwardness—several employees recall watching him grab food with his hands from lavish buffets ordered for the office—that engenders an almost familial devotion. Problems are kept in-house, and Black and his lieutenants always know who owes them a favor. Get close enough to the patriarch, and you’re almost as unlikely to wind up in trouble as he is.
For instance, when Roger Orf, who leads Apollo’s European real estate business and is well-connected in U.K. political circles, was discovered using company resources and assets to run his personal real estate deals, he was asked only to return some of the money, according to people with knowledge of the matter. (An Apollo spokesman says the firm conducted an internal review and found that Orf hadn’t intentionally done anything wrong.)
Separately, in September, a Bloomberg News investigation found that Apollo had quietly settled a 2015 harassment case against James Belardi, CEO of Apollo’s prized asset, the insurance company Athene, which had become a crucial part of the firm’s empire. According to the complaint, filed with a California state agency, Belardi would go off on profane tirades, lob sexist and racist insults, intimidate staff, and rant about homosexuals. He refused to work with women he deemed unattractive and inquired about the sex life of a female subordinate. In a statement to Bloomberg News, Apollo and Athene said the matter was discussed, and an investigation found no evidence of harassment. Belardi is still CEO of Athene.
Ali Rashid is the rare Apollo employee whose wrongdoings were punished, but only after years of largely getting away with them. In 2010, Rashid’s assistant questioned one of his expenses, triggering an internal review that uncovered Realtor fees and a salon visit had been charged to the company and its clients, a violation of securities laws. About two years later, Rashid was promoted to senior partner, and executives were alerted to more instances of the same behavior. This time he’d also submitted a forged receipt so his suit shopping would look like bulk necktie purchases, which might have been a legitimate business expense if they were meant as gifts for clients.
Black, apparently unconcerned, was heard telling executives he would have paid for Rashid’s suits himself. He didn’t want the talented dealmaker to torch his career. It would have been hard for Apollo’s rainmakers to feign outrage anyway. Many used their company credit card as if it were their own, ordering extravagant steak dinners delivered to the office or scheduling Monday morning meetings in Europe to justify weekend trips with their wives aboard the corporate jet. (Apollo says its expense policies are “clear and strictly enforced.”)
Apollo was by no means the only private equity firm to take advantage of the 2008 financial crisis. Banks were burdened with onerous regulations to prevent another systemwide disaster, but alternative asset managers were under no such restrictions and treated the wreckage as a buffet. In 2012 the U.S. Securities and Exchange Commission, realizing that private equity, once a marginal sliver of the finance industry, had come to dominate Wall Street, launched a broad enforcement crackdown. Only then did Apollo take decisive action with regard to Rashid, flagging his misdeeds to the regulator and firing him in 2014. In announcing a $52.7 million settlement, the SEC said Apollo had “failed to take appropriate action to protect its clients,” resulting in “repeated misconduct.” The spokesman for Apollo, which neither admitted nor denied wrongdoing in the matter, said “no wrongdoing was identified except with respect to Mr. Rashid, who was a clear outlier.” Rashid is fighting the SEC’s allegations.
Meanwhile, Apollo was busy building Athene, the insurer that would become its main source of cash. Apollo helped fuel its own growth by funneling Athene’s money into Apollo funds and collecting management fees on the investments. The arrangement drew the two companies even closer together. As Athene assets swelled at the end of 2013, it became clear to Apollo executives they were sitting on a gold mine. Rowan pushed a measure through the insurer’s board to double the fees it paid Apollo, raising them to more than triple what a typical manager would get, according to people familiar with the matter. (Apollo says it has delivered significant value to Athene and that the insurer benefits from its support, including tax, legal, and financial services.) The insurer has made Apollo the envy of Wall Street. Athene now generates a quarter of Apollo’s fee-related income, but it’s also drawn scrutiny from officials. The relationship between the companies is so intricate, says one former employee, that it would take regulators a year to understand it.
In theory, conflicts of interest are prevented and dealt with by a company’s board. But Rowan, who masterminded the relationship with Athene, stacked the insurer’s board with directors loyal to Apollo. (An Apollo spokesman says Athene’s board is diverse and accomplished.) The current 15-member group includes four Apollo executives, CEO Belardi—who also receives a portion of the fees paid to Apollo—and directors deemed independent even though they sit on other Apollo-related entities, drawing annual salaries of hundreds of thousands from the private equity firm. Being on the Athene board came with at least one sweet perk for former state pension fund executive Bob Borden: Rowan would occasionally send his private jet to Columbia, S.C., to ferry Borden to meetings.
Apollo’s own board is similarly simpatico. Black, Rowan, and Harris hold seats on a seven-member board that also includes New England Patriots owner Robert Kraft, who was charged last year with soliciting prostitution, and former executive director of the CIA Buzzy Krongard, who managed the agency’s relationship with the private security company once known as Blackwater, which was acquired by Apollo as part of a 2016 transaction. (The Apollo spokesman says independent directors chair Apollo’s audit and conflict committees.) This group isn’t “going to jump in and challenge” in the same way as other companies’ directors might, says one person familiar with the dynamics.
So who does hold Black accountable? “Well, first, the law does,” he says, laughing.
There are a few instances where the law has come uncomfortably close to leaving its mark on Black and Apollo. Starting in 2009, the firm became embroiled in a scandal involving CalPERS, one of its earliest investors. At the center of the storm was Alfred Villalobos, a Los Angeles political fixture whose past was full of financial questions. Villalobos was an old friend of Apollo’s. As a CalPERS director in the 1990s, he pushed the pension fund to become one of the firm’s biggest backers. Apollo paid $14 million to the former board member, now acting as a so-called placement agent, in exchange for persuading the fund to invest an additional $3 billion from 2007 to 2008.
The fees were puzzling, because Apollo had a long history with CalPERS. Why would it need an intermediary? As it turned out, it didn’t: The money was part of a kickback scheme. In the end, CalPERS CEO Federico Buenrostro admitted to taking bribes and gifts from Villalobos, as well as falsifying documents given to Apollo that indicated CalPERS had approved payments to the middleman. Buenrostro was sentenced to four and a half years in prison by a federal judge, who called the crime a “dagger in the heart of public trust.” Villalobos died by suicide; he shot himself at a gun club in Nevada before his case went to trial. The SEC determined Apollo had been tricked, and the company wasn’t charged with wrongdoing. A spokesman said that when the firm initially retained Villalobos, its marketing department was small and placement agents often helped develop and expand relationships, even with existing investors.
Public pensions such as CalPERS are some of Apollo’s best customers. States have underfunded and borrowed from their pensions for years. To make up for it, fund managers have looked for juicier returns from alternative assets such as private equity. Black’s aggressive approach—involving layoffs and slashing benefits—is also among the most profitable. Apollo’s flagship private equity fund, which it opened to investors in 2001, has delivered annual returns of 44%. Pensions have become Apollo’s largest investor base.
Black has often tried to ease the cognitive dissonance by reminding pension fund managers that he comes from a family of teachers. He says he’s proud that his firm is helping to ensure the retirement incomes of public employees. “They’re going to have their full pensions,” he says. “I am incredibly proud that we can perform for them and give them great returns.”
Not everyone sees it that way. In 2016, Apollo moved to cut retirement and health benefits for workers at a chemical plant it owned in upstate New York. The workers, who sometimes developed cancer from handling hazardous materials, felt they had no choice but to strike. New York State Comptroller Thomas DiNapoli joined the picket line, but it was a little awkward—New York’s pension system invested $350 million in the fund Apollo had used to buy the chemical plant. The strike lasted an impressive 105 days through the dead of winter, but in the end, Apollo, which had been paying itself millions of dollars to oversee the ailing company, held all the cards. “It’s assisted suicide,” says Stephen Lerner, a former strategist for the Service Employees International Union who also tracks asset managers’ involvement in labor disputes. “We invest in companies whose official ideology is they want to destroy us.”
Then there’s Jeffrey Epstein. While Black and Apollo representatives say Epstein never invested in Apollo funds, the extent of Black’s financial ties with him may not be fully known. In one instance, Black persuaded Epstein to invest in a struggling muffler manufacturer run by Black’s Boston roommate Bengt Odner. Shares in the company tanked in 2000 after a major shareholder paid for a purportedly independent research report that called the product “revolutionary,” then sold his entire holding. Odner was in need of a cash infusion. He insisted to Black that the muffler was so technically advanced you could safely inhale straight from the tailpipe, and Black, in turn, took the deal to the science-obsessed Epstein. By 2011, Black’s two sons and two executives from Apollo were on the muffler maker’s board and one of Epstein’s companies was among its biggest shareholders.
At Black’s company, the motto has always been: The best idea wins. Associating with Epstein was a bad idea, and even if the predator’s death has quieted the chatter, questions about the relationship remain. On top of everything else, Black gave $10 million to Epstein’s charity, and according to someone familiar with his thinking, would sometimes take Epstein’s tax ideas to his own lawyers, asking them why they hadn’t come up with the strategies Epstein produced.
But memories are short on Wall Street, and with enough zeros, almost anything can be forgiven. In total, Black and his wife, Debra, have given approximately $300 million to philanthropic causes such as endowing a Shakespeare studies chair at Dartmouth and funding melanoma research. Two months after Epstein died, Black celebrated MoMA’s reopening after a substantial renovation, an effort to which he personally gave $40 million. A month later he was in front of investors at Manhattan’s Plaza Hotel, predicting that Apollo would double its assets, to $600 billion, in the next five years. The massive figure “does not represent the endgame,” he intoned.
When asked later on at his office what he has left to accomplish, it’s this race for assets that he says is on his mind. “I’m not retiring,” he adds. The billionaire, those who know him say, will never truly let go. “Leon is Apollo,” says one. “Apollo is Leon.” —With Max Abelson, Sonali Basak, Katya Kazakina, Gillian Tan, and Neil Weinberg
