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🍋 Apollo’s Twisted Bet

🍋 Apollo’s Twisted Bet

Apollo was betting on senior-citizen life insurance policies, plus private equity dealmaking coming back.

Short Squeez
April 30, 2024

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"Deep work is the superpower of the 21st century." — Cal Newport

Good Morning! Private equity deals are making a comeback, with dealmaking activity up 54% year-over-year. Meanwhile, lawmakers are cracking down on Wall Street firms scooping and driving up home prices. WeWork cut a new deal, spurring Neumann from the company’s restructuring. Young Americans’ wealth has soared by almost 50% since the pandemic. And L’Occitane’s owner offered a buyout valuing the company at $6.4 billion.

April's edition of Buysiders drops tomorrow. Make sure you're subscribed to get the scoop on this month's top 3 deals, including Home Depot's acquisition of SRS and the 99% destruction in value of Bird Scooter.

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Apollo’s Twisted Bet

Apollo Global Management, a private equity megafund, is well-known for working its associates to the tune of 100+ work weeks, and faced controversy when co-founder Leon Black was ousted for some sketchy ties to Epstein.

And Apollo is not doing any favors for private equity's PR, having just been named in a Delaware lawsuit for one of the most twisted bets of all time. The private equity megafund is accused of literally betting on human lives through illicit life insurance schemes.

And the craziest part? These senior citizens didn’t even know Apollo had life insurance policies out on them.

Apollo allegedly carried out a 'widespread fraudulent human life wagering conspiracy’ using a secret affiliate, Financial Credit Investment. Financial Credit Investment managed a portfolio worth roughly $20 billion of stranger-oriented life insurance policies.

And, when the senior citizens eventually passed away and the families tried to collect from the life insurance policy, Apollo used sham trusts to conceal the ownership of the policy and evade accountability.

That’s exactly what happened to the family of Martha Barotz, who in 2006, unwittingly agreed to a life insurance policy that eventually paid out $5 million upon her death in 2018. Barotz let an entity called Life Accumulation Trust III take out the policy in her 70s, in exchange for a payment equaling 3% of the death benefit.

One of Apollo’s trade secrets? Strategic insolvencies. They would make their shell entities go bankrupt to skirt financial liabilities. And the lawsuit claims this was all part of a larger pattern of deceptive practices by Apollo.

Like anything, these life insurance policies were securitized, so Apollo had no way of knowing any of the specific information about the people whose life insurance policies it bought. But most people in the life insurance industry say it’s highly unethical to buy life insurance policies on people you don’t know.

Takeaway: The lengths Apollo went to obscure its involvement, with shell companies and the like, do make things seem a little sketchy. After all, how would you feel knowing that a private equity firm bought your life insurance policy, and has a financial stake in whether you live or die?

If we had to guess, Apollo probably was very careful to play by the rules here, and just because someone accuses a private equity firm of fraud doesn’t mean their lawyers can’t wiggle their way out of it. Just because a private equity firm can technically make a legal investment, doesn’t mean they should.

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_HEADLINES

Markets Rundown

Tesla’s big day pushed stocks to close higher.

Movers & Shakers

(+) Philips ($PHG) +27% as firm settles U.S. respiratory device case.
(+) Tesla ($TSLA) +15% after a significant self-driving milestone.
(–) SoFi ($SOFI) -11% after announcing disappointing Q2 revenue outlook.

Private Dealmaking

ONO Pharmaceutical bought Deciphera Pharmaceuticals for $2.4 billion
Pine Gate Renewables, a clean energy project owner, raised $650 million
Niobrara Capital and Prsym Capital invested $175 million in Polar Semiconductor
Manipal Hospitals of India bought an 87% stake in Medica Synergie for $168 million
Bruin Capital bought PlayGreen, a turf management solutions provider, for $120 million
Markt-Pilot, a price optimization SaaS, raised $43 million

For more PE, VC & M&A deals, subscribe to our Buysiders newsletter.

_{BOOK OF THE DAY}

American Kingpin

In 2011, a twenty-six-year-old libertarian programmer named Ross Ulbricht launched the ultimate free market: the Silk Road, a clandestine Web site hosted on the Dark Web where anyone could trade anything—drugs, hacking software, forged passports, counterfeit cash, poisons—free of the government’s watchful eye.

It wasn’t long before the media got wind of the new Web site where anyone—not just teenagers and weed dealers but terrorists and black hat hackers—could buy and sell contraband detection-free.

Spurred by a public outcry, the federal government launched an epic two-year manhunt for the site’s elusive proprietor, with no leads, no witnesses, and no clear jurisdiction. All the investigators knew was that whoever was running the site called himself the Dread Pirate Roberts.

The Silk Road quickly ballooned into $1.2 billion enterprise, and Ross embraced his new role as kingpin. He enlisted a loyal crew of allies in high and low places, all as addicted to the danger and thrill of running an illegal marketplace as their customers were to the heroin they sold.

Through his network he got wind of the target on his back and took drastic steps to protect himself—including ordering a hit on a former employee. As Ross made plans to disappear forever, the Feds raced against the clock to catch a man they weren’t sure even existed, searching for a needle in the haystack of the global Internet.

“Even though all these people were dealing in illicit activities, they each had a moral sense that their particular outlawed product was more just than another.”

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Many More Private Firms in Europe

In Europe, 96% of firms with revenue greater than $100 million are private

Source: Apollo

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Uncertainty

In the poker game of life, we must make the best decisions we can with the limited information available to us in the moment. Just like in poker, the outcomes are influenced by both the quality of our decisions and the hand of fate.

Rather than judging our choices solely by their results, which can lead to anxiety and poor future decision-making, we should focus on the process - putting in the effort to thoroughly analyze the situation, weigh different options, and then confidently make the best choice possible given what we know.

If things don't work out, avoid harsh self-criticism and instead maintain faith that by continuing to make well-reasoned decisions, luck will even out in our favor over the long run.

Applying game theory concepts like anticipating others' strategies and motivating ourselves through gamification can further enhance our ability to play the game of life skillfully.

But remember, while we can optimize our odds, we must ultimately embrace the uncertainty and uncontrollable aspects inherent to the game.

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🍋 Apollo’s Twisted Bet

Apollo was betting on senior-citizen life insurance policies, plus private equity dealmaking coming back.

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