Private-Equity Payday: Carlyle Founders Get $402 Million
By GREGORY ZUCKERMAN And RYAN DEZEMBER
Amid a swirl of controversy about the private-equity
business, industry powerhouse Carlyle Group revealed that its three
founders together earned more than $400 million last year.
News of the payday comes as Republican presidential candidate Mitt
Romney has been bombarded with criticism for the work of his former
firm, private-equity giant Bain Capital, including from fellow
Republican Newt Gingrich. Mr. Romney's campaign has indicated it is
prepared to defend his work as a part of free-market capitalism. Bain has said the company's focus is on
working with management teams "to build great companies and improve
their operations."
At Carlyle, the earnings for David
Rubenstein, William Conway and Daniel D'Aniello amounted to salary of
$275,000, a bonus of $3.5 million, and a $134 million share of the
firm's investment profits apiece, according to a document filed with the
Securities and Exchange Commission late Tuesday.
The filing is ahead of Carlyle's anticipated initial public offering
later this year, likely in the second quarter, according to someone
close to the matter. A representative for the firm declined to comment.
Washington D.C.-based Carlyle, like other buyout firms, claims 20% of
the profits of the firm's investments. The $402 million the three
executives shared—in addition to their salaries and bonuses—represented
more than half of the 20% fees that Carlyle claimed on the firm's
investment gains in 2011.
The three also saw hefty returns on their personal investments in the
firm's funds, separate from their take of the profits. Carlyle reported
distributions to Messrs. D'Aniello, Conway, and Rubenstein of $77.6
million, $70.9 million and $56.8 million, respectively. The filing
doesn't specify what portion of those distributions consisted of their
original investments.
The founders continue to plow money back into their funds. Last year,
Mr. Conway, a co-chief executive, invested $164 million, Mr. D'Aniello,
Carlyle's chairman, put in $98 million, and Mr. Rubenstein, the other
co-CEO, invested $97 million, the filing says. They have made
outstanding commitments to invest an additional $490.7 million to the
funds, the filing says.
Within Carlyle, the compensation didn't cause many ripples. Some
executives were unaware of pay details of the three founders, one person
at the firm said, adding that the three top partners were generally
assumed to have been making more than half of the firm's profits.
"It's certainly a sizable payday and yet in this sector, it's not
unusual," said David Wise, senior principal at management consulting
firm Hay Group. "People go into private equity because at the end of the
rainbow, they can have a payout like this."
When Blackstone Group
LP was preparing its own public offering in 2007, it reported that in
2006 its top five executives shared in $771.5 million in cash
distributions, their full compensation at the time. Chairman and Chief
Executive Officer Stephen Schwarzman was paid $398.3 million, senior
chairman Peter Peterson's share was $212.9 million and Hamilton James,
Blackstone's president and chief operating officer, collected $97.3
million, according to a securities filing.
The Carlyle payday resulted from an especially active and successful
period last year. The buyout firm has reported economic net income, the
industry's preferred measure of earnings, of $579 million through the
first nine months of last year, the most recent data available from the
company. It handed back $15 billion to its investors during those nine
months, representing profits from the firm's buyout deals as well as
original money invested by clients. That was a record for any nine-month
period for Carlyle and almost double the previous best period.
The firm, founded in 1987, originally forged close ties within
political circles, hiring former senior politicians such as former
Defense Secretary Frank Carlucci, who served as chairman of Carlyle from
1992 to 2003. Former President George H.W. Bush and former Secretary of
State James A. Baker III also served as advisers. Early on, some of
Carlyle's deals were in the defense industry.
But in recent years Carlyle has cut ties with former politicians,
emerging as a more-global buyout player than some of its peers, with
early deals in China. Carlyle has launched many more, smaller buyout
funds than rivals, sometimes with a narrow focus, and executives receive
more of their compensation from the profits they specifically generate,
rather than the overall firm's gains.
Though the Carlyle pay may cause a backlash, some clients said they
had little to criticize after a year of big gains from the sale of
interests in companies including China Pacific Insurance Group Co., Kinder Morgan Inc. and Dunkin' Brands Group
Inc. "They obviously had a very good year and are incentivized to
create gains for investors and are entitled to 20% of those gains," says
an executive with an investment in Carlyle funds. "Investors had to
have made a lot of money" for the trio to make more than $400 million
last year.
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com
