The largest paychecks on Wall Street aren’t being collected in corner offices at Goldman Sachs or JPMorgan, but at the top ranks of the world’s largest private equity firms, where hundreds of millions of dollars are flowing in carried interest payouts and bonuses.
Blackstone, the $881 billion giant founded by CEO Stephen Schwarzman in 1985, disclosed in its annual report Friday night that it paid $317 million last year in carried interest and performance fee allocations to Schwarzman, president Jonathan Gray and Hamilton James, who retired in January as executive vice chair. Including $940 million in dividends, Schwarzman took home $1.1 billion.
“Our compensation model is built on long-term alignment with our investors – and we are proud that in 2021 we delivered record fund appreciation and earnings performance,” Blackstone spokesman Matt Anderson said in a statement.
KKR’s annual report Monday morning showed more of the same. Newly-minted co-CEOs Joseph Bae and Scott Nuttall each raked in more than $55 million from its carried interest pool and received bonus payments of $24.7 million, and stock awards pushed their take-home pay to well over $100 million. Founders and co-executive chairmen Henry Kravis and George Roberts also earned $66 million each in carried interest last year. KKR’s $296 million in carried interest and bonus compensation to those four men last year nearly doubled its 2020 total.
Both Bae and Nuttall had already earned enough stock to be worth more than $1 billion by the time they took the reins from Kravis and Roberts last October, and they were each granted an additional 1.15 million shares of stock now worth about $70 million coinciding with their promotions, with 70% of that award vested immediately and the remainder vesting this October.
In December, they both received packages of 7.5 million shares that can vest by the end of 2026 if they stay with the firm and KKR’s stock hits a series of performance-based targets up to $135.80 per share. That incentive plan would be worth an additional $1 billion for both of them if all of the shares vest at the top target price – KKR is now trading at $60 per share, down 18% so far this year after an 84% gain in 2020.
Those pay packages would be the envy of CEOs at America’s largest banks. Goldman Sachs’ David Solomon, JPMorgan’s Jamie Dimon and Morgan Stanley’s James Gorman all made about $35 million in total compensation last year, excluding dividends.
The ballooning executive compensation at private equity and alternative investing firms reflects an industry flush with more cash than ever before. Blackstone’s net profit last year was $5.9 billion, up from $1 billion in 2020, and Schwarzman is now worth an estimated $37.6 billion after its stock has doubled since the beginning of 2021. KKR’s assets under management grew 87% in 2021 to $471 billion, with 55% in its private equity business and 45% in public market assets in credit funds and hedge-fund partnerships, which the firm launched in 2004 and grew from $103 billion at the end of 2020 to $213.5 billion last year.
The Carlyle Group, which manages $301 billion in assets, also saw its net profit grow from $348 million in 2020 to $3 billion last year, and $498-billion Apollo Global Management’s annual profit surged from $120 million to $1.8 billion. Neither of those firms have disclosed yet how much they paid their top brass last year, but it’s no wonder that competitors like TPG went public in January to begin to share in the spoils.
The article delves into the exorbitant compensations within top private equity firms, showcasing the colossal earnings of executives at firms like Blackstone, KKR, Carlyle Group, and Apollo Global Management. These figures, sometimes exceeding a billion dollars, are primarily derived from carried interest payouts, performance fees, stock awards, and dividends.
Let's break down the concepts:
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Private Equity Firms: These are investment management companies that pool funds from high-net-worth individuals and institutions to invest in private companies or take public companies private, aiming for high returns.
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Carried Interest: This refers to a share of profits that investment managers receive as compensation, typically around 20% of the fund's profits, which serves as a major component of their income.
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Performance Fees: These are rewards given to managers based on the performance of the fund. They are often tied to specific benchmarks and can significantly boost earnings.
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Stock Awards: Executives often receive stocks as part of their compensation packages, granting them ownership in the company, with their value contingent on the firm's performance in the stock market.
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Dividends: These are payments made by a corporation to its shareholders, often reflecting a portion of the company's profits.
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Assets Under Management (AUM): This denotes the total market value of assets a financial institution manages on behalf of its clients.
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Net Profit: The remaining profit after deducting expenses from total revenue. It's a key metric in evaluating a company's financial health.
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Public vs. Private Market Assets: Private equity firms manage both private (non-publicly traded) and public market assets. The latter includes investments in publicly traded companies or assets like stocks, bonds, etc.
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Initial Public Offering (IPO): When a private company offers its shares to the public for the first time, allowing investors to trade its stock on an exchange.
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Hedge Funds: Investment funds that aim to generate high returns for investors by using various strategies, often more aggressively than traditional investment funds.
This article paints a vivid picture of the immense wealth generated within the private equity sector, showcasing how the compensation for top executives in these firms surpasses even that of CEOs in major banks due to the significant profits these firms generate from their investments.
