The top 10 dealmakers at publicly traded private-equity firms took home at least $1.7 billion in dividends in 2013 as they seized on rallying stock markets to sell stakes in everything from a Chinese insurer to a U.S. theme-park operator to a French floormaker.
Among the biggest earners, Leon Black received about $369 million in distributions from his stock ownership in Apollo Global Management LLC (APO:US), which he founded in 1990, according to calculations by Bloomberg, more than double his 2012 payout. That topped dividends earned last year by KKR & Co. (KKR:US)’s Henry Kravis and Carlyle Group LP’s three founders, and could exceed those collected by Blackstone Group LP (BX:US) Chairman Stephen Schwarzman, the wealthiest of the buyout titans.
“In the best of times, pay for top private-equity executives can’t be beat,” said Erik Gordon, a business professor at the University of Michigan in Ann Arbor. “In the worst of times, it’s still mighty good because buyout firms have many ways of extracting cash from portfolio companies, whether or not the companies are doing well.”
Top buyout managers, most of whose payouts will be detailed in filings with the Securities and Exchange Commission as soon as this week, get the majority of their income from dividends and distributions on their ownership in the firms, which increase as firms realize profits on their fund holdings. Buyout executives are among the wealthiest Americans, with Black ranking 48th in the U.S. with a net worth of $9.1 billion and Schwarzman 39th with an estimated $10.9 billion, according to the Bloomberg Billionaires Index.
Black’s dividend income on his Apollo stake last year equals almost 25,000 times the $15,080 in annual pay earned by an American on minimum wage. That means he made in Apollo distributions every 21 minutes what a worker on the federal minimum wage earns in a year.
The increased dividends reflect a jump in sales of holdings. Apollo returned a near-record $22.6 billion to its fund investors -- which include public pension plans, endowments and wealthy families -- after Black said in April he was “selling everything that’s not nailed down.”
Private-equity firms pay dividends from a pool of distributable earnings, which consists of their cut of gains on investments, known as carried interest, fee income and, in some cases, gains from investments a firm made alongside clients. Executives’ annual salaries, by contrast, are relatively small. They’ve ranged from $100,000 in the case of Apollo’s Black to $350,000 for Blackstone’s Schwarzman.
Earnings for the heads of the largest banks pale in comparison to the rewards available in private equity. Goldman Sachs Group Inc. gave its Chief Executive Officer Lloyd Blankfein $23 million for 2013, JPMorgan Chase & Co. (JPM:US)’s Jamie Dimon earned $20 million and Citigroup Inc. paid Michael Corbat about $14.4 million.
Buyout executives, whose firms traditionally buy companies using borrowed money, acknowledge much of the market rally was driven by accommodative monetary policy put in place by the Federal Reserve.
“Thank you, Ben Bernanke,” Schwarzman, Blackstone’s billionaire co-founder and CEO, said at a December conference referring to the former Fed chairman. “I saw him last Thursday and I thanked him. The opportunity for us to be able to attract funds is very, very high.”
Schwarzman is expected to receive at least $311 million in dividends on his ownership in the firm he founded with former partner Peter G. Peterson in 1985. That’s based on declared dividends for common shareholders, whose payouts are typically smaller than those for partnership unit holders like Schwarzman. He’s previously also collected carried interest, or a cut of investment profits.
Carlyle founders William Conway, Daniel DâAniello and David Rubenstein are expected to take home at least $88.4 million each. That calculation is also based on dividends on common shares, which are lower than distributions to partners.
KKR yesterday said co-CEOs Kravis and George Roberts received more than $161 million each in 2013, mostly in dividends and carried interest. The increase of more than 17 percent in their payouts was driven by higher stock dividends in two of the four quarters, the result of a revised shareholder payout policy and profitable asset sales.
Representatives for Blackstone, Carlyle, Apollo and KKR, the four largest publicly traded private-equity firms, declined to comment.
Shares of the companies, which have diversified from LBOs to oversee real estate, debt investments and hedge funds, returned an average 70 percent last year. Blackstone, which sold shares to the public before the 2008 financial crisis, more than doubled in 2013, exceeding its IPO price for the first time in six years.
The increase in the shares added $3.7 billion and $1.3 billion to the wealth of Schwarzman and Black, respectively, in 2013. They were among a group of the world’s 300 wealthiest individuals, who added $524 billion to their collective net worth during the period.
The surging wealth of the richest, amid stagnant wages and slow job growth, has sparked increasing concern about income inequality. Former Federal Reserve Chairman Alan Greenspan said yesterday that it’s “the most dangerous part of what’s going on” in the U.S.
Income disparity has sparked calls for increasing the minimum wage, a key issue heading into U.S. elections in November. Legislation has been introduced in at least 28 states to boost the minimum hourly pay, according to the National Conference of State Legislatures, and Democratic governors last week endorsed President Barack Obama’s efforts to raise the federal minimum to $10.10 an hour from $7.25.
“The trends that have battered the middle class for a couple of decades now are still there and still have to be addressed,” Obama said yesterday at the White House. “Those at the top are doing very well. Ordinary families are still being squeezed.”
Last year “was a very, very good year and one that I think will be hard to repeat,” Apollo President Marc Spilker said on a Feb. 7 conference call with investors. “Given the diversity of the platform that we have -- in real estate and in credit and in private equity and in natural resources -- there are many sources of distributions that are going to be available over the next bunch of years.”
Apollo’s wins in 2013 included the exit from chemicals maker LyondellBasell Industries NV (LYB:US), capping a gain of more than $10 billion, the largest ever for a private-equity deal. Apollo and its investors sold more than $6.9 billion of LyondellBasell shares during the year, according to regulatory filings. Its other dispositions included the sale of CKE Restaurants Inc. as well as share sales of real estate broker Realogy Holdings Corp. and Berry Plastics Group Inc.
Blackstone returned $38 billion to investors in its private-equity, real estate, credit and hedge funds in the year. Its private-equity unit unloaded shares of ratings company Nielsen Holdings NV (NLSN:US), theme park operator SeaWorld Entertainment Inc. and Pinnacle Foods Inc.
Blackstone’s biggest gain was on paper. Hotel chain Hilton Worldwide Holdings Inc. (HLT:US)’s initial public offering in December yielded nearly a $10 billion profit, which will be unrealized until Blackstone begins selling shares.
Carlyle and KKR gave back $17.4 billion and $11.9 billion, respectively, to fund investors.
KKR’s sales included its remaining stake in discount retailer Dollar General Corp. (DG:US), a 2007 buyout that returned more than 4.5 times KKR’s investment of more than $1 billion, and share sales of Nielsen and hospital operator HCA Holdings Inc. (HCA:US)
The high level of exit activity isn’t sustainable, David Bonderman, founding partner of TPG Capital, said today at a conference in Berlin.
“This is a highly cyclical business both in the availability of capital and deals,” he said.
Rubenstein, Carlyle’s billionaire co-CEO and co-founder, and Blackstone’s Schwarzman were among the most charitable Americans in 2013, ranking 21st and 23rd, respectively, on a list compiled Feb. 9 by the Chronicle of Philanthropy. Rubenstein -- a signatory of the so-called Giving Pledge started by Bill Gates, in which leaders donate at least half of their wealth -- gave away $121.7 million last year to Washington’s Kennedy Center for the Performing Arts, Duke University, the National Gallery of Art and other institutions.
Schwarzman donated $103 million in the year, establishing a scholarship program in his name at China’s Tsinghua University. Kravis last month became chairman of Sponsors for Educational Opportunity, an organization he helps fund to prepare low-income students for college and business careers, and Black and his wife have supported Dartmouth College and the Melanoma Research Alliance.
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