Private equity chiefs get bumper payouts on back of US central bank stimulus
Blackstone’s Schwarzman received at least $615m while Leon Black took home $225m
Stephen Schwarzman, chief executive of Blackstone (L), with president Donald Trump in 2017. In 2020 Schwarzman earned one-fifth more than the previous year. File photograph: Al Drago/The New York Times
Private equity executives who rank among the richest men on Wall Street received hundreds of millions of dollars in payouts even as the US economy faltered last year, helped by central bank stimulus that wiped out the investment losses they recorded early in the pandemic.
Blackstone founder Stephen Schwarzman received at least $615 million (€512 million), most of it in dividends. That is one-fifth more than he earned the previous year, as strong investment returns and inflows of fee-paying capital boosted earnings at the world’s biggest private equity firm.
At Apollo Global Management, Leon Black took home at least $225 million - slightly more than the amount he has pledged to donate to causes that “protect and empower women” following revelations of his professional ties to the late sex offender Jeffrey Epstein.
Top executives at private equity firms typically receive salaries that are modest by the standards of public companies. But many of them are also entitled to receive “carried interest”, giving them a share of the profits on successful investments. And some are significant shareholders, meaning that they receive sizeable dividends.
That arrangement has proved especially lucrative for the firms’ ageing founders, who retain outsize equity stakes even as a new generation of executives begin to take centre stage.
The bumper payouts contrast with staggering paper losses that the private capital sector recorded early in the pandemic, as businesses were forced to close, unemployment hit record highs and credit markets seized up in anticipation of a wave of business failures.
As markets plummeted in late March last year, Apollo calculated that its partners and employees would have had to hand back $390 million in performance-related pay if its portfolio had been liquidated at pandemic-hit valuations.
That prospect receded within weeks, as the Federal Reserve announced an unprecedented programme of monetary stimulus. By the end of 2020, shares in Blackstone, Apollo and KKR roughly doubled from their March lows.
A leading advocate of aggressive Fed action was Marc Rowan, the Apollo co-founder who is due to take over from Mr Black as chief executive this year.
In correspondence with US president Donald Trump’s son-in-law Jared Kushner, he urged an expansion of the Fed’s purchases of securitised debt, which was buoying the price of assets similar to those held or managed by Apollo and its peers.
Mr Rowan received dividends of at least $89.5 million.
Meanwhile, private equity firms have found new ways to profit from frenzied markets. Apollo provided rescue financing to the online travel agency Expedia and the stricken car rental company Hertz. Blackstone is set to earn billions of dollars in profits from the initial public offerings of the dating app Bumble and the milk substitute brand Oatly, fast-growing businesses that it backed over the past two years.
Jonathan Gray, Blackstone’s chief operating officer and president, took home $93 million in dividends last year, in addition to $86 million in cash earnings and a $37m stock award.
Blackstone said that pay for its executives was “directly tied to investor and shareholder performance. Our investment performance is driven by thoughtfully deploying capital in the right sectors and delivering for our clients over the long term.”– Copyright The Financial Times Limited 2021