NEW YORK (Reuters) - Apollo Global Management LLC said on Thursday it had entered into three-year agreements with its founders, including billionaire Leon Black, having previously said it was debating whether such contracts were necessary in the first place.
Black’s commitment to the firm, which he founded in 1990 with former Drexel Burnham colleagues Joshua Harris and Marc Rowan, was never really in doubt. The three collectively own about 55 percent of the buyout firm and rely on dividends paid on their Apollo shares for most of their rewards.
But Apollo’s decision to opt for a new employment agreement for Black, Harris and Rowan -- which will be on similar terms to their previous contracts but run for three years as opposed to five years previously -- was not accompanied by any details as to why it was necessary.
“Josh, Marc and I strongly believe that the signing of our new employment agreements under substantially similar terms to our original agreements demonstrates our unwavering commitment to Apollo and a clear alignment of interests with our fellow shareholders,” Black said in a statement.
Investors in private equity funds tie up their money for an average of ten years and their commitments usually come with key-man clauses to ensure that senior leadership at the fund managers remains intact. Other major private equity firms, including KKR & Co LP and Carlyle Group LP, have found separate employment agreements for founders redundant.
Black‘s, Harris’s and Rowan’s employment agreements are the product of private offering transactions that took place in 2007 and resulted in Apollo’s reorganization. They expired on July 13, 2012, and have now been renewed till July 19, 2015.
Black’s total annual compensation as CEO will remain $100,000, the same as for Harris and Rowan. Black also took home $104.2 million in dividends, salary and share of profits from the private equity firm last year, more than twice what he got in 2010, thanks to the firm’s record investment payouts.
The announcement on Thursday came after Apollo President Marc Spilker said on May 8 on a conference call with analysts that the firm was debating whether an employment contract was necessary.
“Our dialog has centered around two key topics. First, given their active ongoing involvement with the firm, are employment contracts necessary; and secondly, whether incremental compensation should be considered,” Spilker said at the time.
New York-based Apollo had warned that retaining Black, Harris and Rowan could require it to incur significant compensation expenses after the expiration of their employment agreements in 2012.
“Our managing partners may resign, join our competitors or form a competing firm at any time ... The loss of the services of any of our managing partners would have a material adverse effect on us, including our ability to retain and attract investors and raise new funds, and the performance of our funds,” Apollo said in its latest annual regulatory filing.
Some analysts expressed relief that the renewal of the agreements came without any additional expense to Apollo, leaving the founders relying on dividends of their shares for the vast majority of their personal profits.
“We view this as a positive for the stock as, in our view, it removes what for us was a potential overhang, and we believe this is the best possible outcome for public investors,” Keefe, Bruyette & Woods analysts wrote in a note.
With a net worth estimated by Forbes at $3.4 billion, Black, 61, is seen as one of private equity’s most successful leaders. He is a prolific art collector and was revealed earlier this month as the mystery buyer who paid a record $120 million for Edvard Munch’s masterpiece “The Scream”.
Reporting by Greg Roumeliotis in New York