Apollo’s CalPERS Broker Was No Broker

It’s taken a while, but I finally have the opportunity to discuss what the meaning of “is” is. No, not in reference to that, but in reference to the questionable trinity of CalPERS, Alfred Villalobos and Apollo Management.

Last week, CalPERS sent over a slew of documents it had compiled on funds that had used Villalobos as a placement agent to successfully secure investments from CalPERS. These documents had been requested by CalPERS of its general partners, as retroactive disclosures that had not been required until just a couple of months ago.

Most of the paper I received was about Apollo, which used Villalobos several different times to secure fund commitments from CalPERS – even after CalPERS purchased a piece of Apollo’s management company (a deal aided by Villalobos).

What’s clear from these documents is that Villalobos was more a “broker” than a “finder,” in that his compensation was structured as a percentage of CalPERS’ monetary commitment. “Finders” are typically paid a flat referral fee, according to fund formation attorneys I’ve spoken with. It’s a gray area – even after the SEC in April 2008 – but it would be unusual for a knowledgeable firm like Apollo to hire an unregistered individual or firm to serve as a “broker.”

But that seems to be exactly what Apollo did with Villalobos. According to FINRA, Villalobos was not a registered broker until May 2009 – even though he was acting like one for Apollo long before that. Moreover, Villalobos’ firm – ARVCO Financial Ventures – wasn’t registered until June 2008 (a predecessor firm called ARVCO Capital Research was not registered).

In its placement agent disclosure forms, CalPERS asked Apollo to “check the box to indicate whether the Placement Agent is registered with the SEC or FINRA and provide details of such registration.”

Notice the verb tense, and how CalPERS doesn’t ask if the agent was registered at the time of their interaction with CalPERS. The result is that Apollo checked the box, confirming that ARVCO is registered.

CalPERS asks a poorly-worded question, and Apollo exploits it by providing a technically accurate answer that is intentionally irrelevant.

An Apollo spokesman declined comment, while I was unable to get anyone on the phone at CalPERS.

Drip, drip, drip from CalPERS…