Blackstone and KKR are slowing down on carried interest. One firm is not
Private equity is the promised land for many an aspiring junior financier, and even many an aspiring senior financier, too. A big part of the allure is the potential for carried interest payments – the massive accumulating profit share of a successful deal that is split up amongst a deal team. Carried interest can comfortably reach eight figures.
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Unfortunately, carried interest relies on something that firms cannot guarantee: the successful exiting of investments above a hurdle rate. Results from Blackstone, Apollo and KKR suggest that this did not happen equally across firms in the third quarter.
At Blackstone, pay tied to realised carried interest - locked-in income from exits, rather than just paper gains - fell 39% year on year across the whole business in Q3. At KKR it fell 35%, although this was partly because KKR now books some performance fees as fee income instead. At Apollo, however, it rose 156%.
The decline in carried interest was not matched by spending on salaries and bonuses in Q3. At Blackstone, salaries, bonuses, and share awards rose 7%. At KKR, they rose 23%. At Apollo, they rose 22%.
Carried interest is only paid when firms sell investments at a profit, so it can swing rather dramatically from quarter to quarter based upon exits. Blackstone’s realised carried interest from private equity specificially halved in Q3, while Apollo’s rose 80% overall, helped by exits from funds including Fund X, and it paid a bigger share of that to staff. Salaries and bonuses are mostly paid out of management fees, which rose at all three firms... but Apollo said its salary bill rose mainly because it had more staff.
None of the firms disclosed headcount in their Q3 figures, making a per-head comparison impossible. Each also has a different mix of private equity, private credit, insurance and other businesses under its umbrella.
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