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Last updated: March 4, 2014 4:31 am
The nine founders of the four big listed US private equity companies took home more than $2.5bn between them last year, with Apollo Global Management’s Leon Black alone receiving $546m.
The dividend income, investment profits and other compensation shared by the founders of Apollo, Blackstone, Carlyle and KKR – at least double last year’s payouts – reflect the rising market value of their companies in a market boosted by the Federal Reserve’s easy money policies.
US equity markets rose 30 per cent last year, boosting boardroom pay across the US, but the rewards for private equity chiefs dwarf the often controversial compensation packages of Wall Street chief executives.
Apollo’s three founders – Mr Black, Josh Harris and Marc Rowan – collectively took home over $1bn. Mr Black earned $369m in cash dividends and $177m in profits on his investments in Apollo funds. His basic salary was just $100,000, with an additional $187,000 for other expenses, such as a car and driver. Mr Harris received a total of $275m and Mr Rowan $258m.
Blackstone’s Steve Schwarzman received $374.5m, the three founders of Carlyle – Bill Conway, Daniel D’Aniello and David Rubenstein – shared $750m, while KKR co-founders Henry Kravis and George Roberts earned a combined $327m.
Although most of the nine founders’ remuneration was in the form of dividends on their shareholdings, the scale of the payouts could reignite debate on the 20 per cent or less tax rate that top private equity executives pay on carried interest.
Meanwhile, two of Carlyle’s three founding partners are preparing to sell a small part of their holding for the first time since the company went public two years ago, as it plans to raise at least $435m.
Mr Conway and Mr D’Aniello will each receive $42.8m dollars if Carlyle sells shares at a planned offer price of $36.27, according to a filing with the SEC. Mr Rubenstein, the third of the three founders, is not selling any shares.
The fortunes that financial entrepreneurs made after going public also show why most of their unlisted rivals are eager to follow their example.
When Apollo was founded in 1990, Mr Black received 44 per cent of the company and his co-founders each received 28 per cent. Today the three collectively own just 50.7 per cent of the fully diluted equity, but they retain control through a separate class of shares.
The scale of their payout reflects Apollo’s strong performance, particularly since the financial crisis. It now has the largest single war chest of any fund in the big buyout firms, raising $18.4bn for its latest fund in just 10 months. Its previous fund returned 27 per cent after fees and made investors – including Apollo’s founders – over 2.5 times their money.
The lure of private equity continues strong at places such as Harvard Business School. But speaking at the school in February, Mr Rubenstein tried hard to suggest that the Golden Age of Private Equity had already passed. “The private equity firms have already been built and the great fortunes had already been made by their founders,” he said, telling new graduates the best thing they could do was to start their own firms. After a pause he added, “and don’t wait until you are 80 to give your fortunes away.”
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