One of the biggest US public pension funds has frozen new investments with Apollo Global Management, as growing concerns about founder Leon Black’s relationship with the late paedophile Jeffrey Epstein take a toll on the $414bn private equity group.

The Pennsylvania Public School Employees’ Retirement System said it had a discussion with Apollo last week following reports that Epstein had received at least $50m in payments from Mr Black since 2008, when Epstein was convicted for soliciting sex from a minor.

“After that phone conversation, PSERS’ Investment team informed Apollo that it will not consider any new investments at this time,” PSERS told the Financial Times.

PSERS is among the biggest backers of private equity funds in the world and contributed $225m to the New York firm’s latest buyout vehicle, according to data provider PitchBook. A person close to Apollo said PSERS has less than $1bn invested with the private equity group.

The PSERS move underscores how the reputational crisis surrounding Mr Black’s relationship with Epstein is becoming a financial risk for Apollo, which manages $414bn for investors that include many of the world’s largest pensions and sovereign wealth funds.

Apollo said in a statement it was “firmly committed to transparency”, adding: “Leon has communicated directly with our investors on this issue and we remain in open dialogue.”

On Tuesday Apollo hired an outside law firm to conduct a probe into his links to Epstein — a move that the firm said was urged by Mr Black “in light of continued attention” to the ties between the two men.

Mr Black has said the payments were for estate planning advice and family office philanthropy and investment services. He has not been accused of any inappropriate behaviour or wrongdoing.

Apollo has never itself done business with Epstein, a spokeswoman said.

PSERS said it was “closely following the ongoing legal issues and the newly launched internal Apollo investigation”.

The abrupt halt to investment from PSERS comes as three other backers of Apollo’s private equity funds have raised concerns about the relationship between Mr Black and Epstein, after Mr Black confirmed that he had paid Epstein millions of dollars per year. 

The investors, all public pension funds, say they are either already in contact with Apollo or are planning to be, as they seek further information about the links between the two men. 

“As a responsible investor we take ESG [environmental, social and governance] . . . seriously,” said Markus Pauli, head of alternative investments at the Finnish pension fund Keva, which manages about €56bn and has committed $225m to Apollo’s most recent private equity fund. 

“We continue to follow the topic and are in dialogue with Apollo,” he said, adding that while Keva generally tried to influence buyout groups “in a positive way” when it had concerns, it could sell its stake in funds “if the manager despite investors’ feedback does not take necessary actions to fix the situation”. He welcomed the outside probe.

Two UK local authority pension funds, the £7bn Essex Pension Fund and the £8.2bn South Yorkshire Pensions Authority, have also voiced concerns about Mr Black’s payments to Epstein, which were first reported by The New York Times last week. 

“Clearly it raises some questions in terms of the timings and nature of the relationship and we will follow those up with the fund manager as part of our ongoing liaison,” said George Graham, director of the SYPA. He also welcomed the law firm’s review.

“We will continue to engage with our private equity manager [Hamilton Lane] to understand what steps the general partners [Apollo] intend to take,” said Essex Pension Fund. A Hamilton Lane spokeswoman declined to comment on its conversations with pension funds and Apollo on the subject.

Most large investors with Apollo have maintained a public silence on Mr Black’s payments to Epstein. Calpers, Calstrs and the NY Common Retirement Fund all declined to comment

Epstein died in jail in August 2019 while awaiting trial on charges of sex trafficking, in what was ruled a suicide.