Pay at Blackstone plummets as carried interest withers
Blackstone, the asset management (and private equity) firm with around $940bn in assets under management, is not having the best year. Nor are its employees.
In its third quarter results, released today, Blackstone disclosed that revenues fell 82% year-on-year in third quarter and that net profits declined by no less than.... 99.8%.
In the circumstances, it might be presumed that Blackstone would jettison staff and cut pay to the bone. There's little sign of the former, but there are indications that pay is falling as carried interest payments shrivel.
In both the third quarter and during the year to date, Blackstone's spending on cash compensation (salaries and bonuses) is up. In Q3, cash compensation was 11% higher than the year before; year-to-date, it's up around 25%. The implication is either that Blackstone is paying existing staff more generous salaries, or that it's added to its headcount of circa 4,000 people.
As anyone who knows anything about private equity pay will know, though, the game is not salaries and bonuses. The game is carried interest, or the payments accrued to funds' investment professionals when investments are exited at a profit. And this is where the pain is.
In the third quarter, realized "performance allocations compensation" (carried interest) at Blackstone, halved to $314k year-on-year as profits made from selling investments deteriorated. However, unrealized performance allocations (from investments not yet exited) went from $1.2bn last year to minus $360m this year.
Unrealized carried interest payments at Blackstone are therefore now seriously underwater. This matters, because carried interest constitutes an important part of pay. Heidrick & Struggles say that a principal at a mega fund like Blackstone can expect to earn $1.2m in salary and bonus a year. However, Heidrick says carried interest - accrued over four to six years, is $12m+ for the same person.
It's not all about lifestyle modification at Blackstone though. Unrealized carried interest fluctuates with the market and will increase if valuations improve (if). More importantly, though, year to date, realized carried interest at the firm is actually up 43%. And although total compensation spending (salaries, bonuses, realized and unrealized carried interest) is down 34%, Blackstone people are still inordinately well paid. Total spending on compensation year-to-date is $5bn, which works out at around $1.3m each for nine months' work.
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