Apollo Offers Redemption for CalPERS: UPDATED

(UPDATE: This story was updated in two places, first in paragraph 6 to add latest trading value for Apollo shares, and second in paragraph 7 to reflect a change in attribution.)

Redemption, of a sort, is likely to come to the California Public Employees’ Retirement System following Apollo’s initial public offering, which is set for Wednesday.

In June 2007, CalPERS and the Abu Dhabi Investment Authority each bought 30 million non-voting shares in Apollo Global Management, for which each giant investor paid $600 million, or $20 per share. Those shares together represented an 18 percent stake in the company.

The following year, the financial crisis pummeled these stakes. In 2009, according to Pensions & Investments, these shares fell on private exchanges to just $6 a share, a drop of nearly 70 percent from their purchase price.

Adding to the anxiety over the drop in value was the fact that CalPERS was sold on the deal by Alfred Villalobos, a placement agent who is now under investigation for bribing CalPERS officials with lavish travel and gifts in order to secure investments for firms that he represented, including Apollo.

Moreover, the private equity adviser that blessed the deal for CalPERS was Pacific Corporate Group, whose former co-president, Steve Moseley, was named in a pay-to-play lawsuit involving the New York State Common Retirement Fund.

Fast forward two years, and it seems CalPERS and ADIA have been redeemed, at least as far as the value of their stakes are concerned. On Tuesday evening, just ahead of Wednesday’s IPO, Apollo’s shares were priced at $19 each, at the top end of the expected range of $17 to $19 a share. (UPDATE: As of early Wednesday afternoon, shares were trading at $18.63.)

When dividends are taken into account, the deal breaks even at $19 a share, based on the $29.7 million dollars that CalPERS and ADIA each received since 2007, according to a March 21 offering prospectus. (UPDATE: The story was updated to attribute dividend information to the offering prospectus.) So, after the harrowing roller-coaster ride of the financial crisis, CalPERS and ADIA arrived at the same place they started.

CalPERS, which manages $230 billion in assets, and ADIA, which manages an estimated $625 billion, are not completely redeemed, however. Actual redemption, in the form of selling their shares, won’t be possible for two years because of a lock-up provision.