Monday, June 11, 2007

Blackstone co-founders to make $2.3bn from IPO (Financial Times)

By James Politi, Ben White and Francesco Guerrera in New York

Blackstone co-founders Pete Peterson and Steve Schwarzman will receive a combined $2.3bn pay-day from the US private equity group's initial public offering, it emerged on Monday, as the firm disclosed a set of long-awaited details on compensation.

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

The sum highlights the extraordinary wealth that private equity executives have created for themselves amid the industry's boom in recent years. This has both elevated their status and influence in global business and attracted increasingly intense scrutiny from politicians and regulators around the world.

Mr Peterson, the 80-year-old senior chairman of Blackstone, will be selling 59.9 per cent of his stake in the company, for a sum of $1.88bn, which will mostly be donated to charity. The former Nixon administration official will only own 4 per cent of Blackstone after the stock market listing, which is expected later this month.

Mr Schwarzman, the 60-year-old chief executive who runs the firm, will be selling a 5.7 per cent stake for $677m. After the IPO, Mr Schwarzman will by far be the largest shareholder in Blackstone, with a stake of 23 per cent worth more than $7bn.

In pressing ahead with an IPO, Blackstone is blazing a trail that many of its peers in the private equity and hedge fund world are expected to follow. But many buy-out executives are reluctant to move their business away from operating as private partnerships partly for fear of the impact of disclosing their net worth and compensation.

In Monday's filing with the Securities and Exchange Commission, Blackstone said Mr Schwarzman earned $398.3m in salary and gains from investments last year, while Mr Peterson earned $212.9m and Tony James, the chosen successor at the firm, earned $97.3m.

Mr Schwarzman's 2006 compensation is about seven times the $54m earned by Lloyd Blankfein of Goldman Sachs, the highest paid chief executive of a publicly traded Wall Street investment bank. But it is well below the amounts earned by the heads of the world's biggest hedge funds. For instance, James Simons, head of quantitative hedge fund group Renaissance Technologies, made about $1.7bn, according to Alpha magazine.

The fact that Mr Schwarzman earned significantly less than many hedge fund managers could provide somewhat of a boost for the private equity industry in its current battles on Capitol Hill. Some members of Congress and union groups want to change the law to treat carried interest as regular income, taxable at up to 35 per cent, rather than as capital gains, currently taxed at 15 per cent.

However, efforts to highlight the less-than-stunning nature Mr Schwarzman's annual pay could be undermined by the Blackstone chief executive's net worth following the IPO, which will be among the largest in the world.

Jim Melican, chairman of Proxy Governance, which advises investors on corporate governance issues, said: " Putting out numbers like these is going to cause renewed focus on how much private equity executives are paying themselves and whether there is any justification for it given that they are already very wealthy individuals"

The filing also disclosed that Goldman Sachs is now among the underwriters of the Blackstone IPO, which it had previously and controversially been excluded from amid reports that insiders at the bank disagreed with the proposed valuation.

1 comment:

Anonymous said...

A person or legal entity, such as a company or trust fund, that meets certain net worth and income qualifications and is considered to be sufficiently sophisticated to make Orange County equity investment decisions in complex situations. Regulation D of the Securities Act of 1933 exempts accredited investors from protection under the Securities Act.