There are the rich and the very rich. Now meet the private equity kings

[Ms DD]

There are the rich and the very rich. Now meet the private equity kings

 

 

· Controversial industry's huge salaries revealed

· Leading lights to make millions after flotation

 

Andrew Clark in New York

Tuesday June 12, 2007

The Guardian

 

 

Powerful, super-rich and flamboyant, they are revered as the new kings of Wall Street. A rare glimpse at the top ranks of executives in the private equity industry reveals a world of private jets, personal helicopters and take-home earnings running into hundreds of millions of dollars.

One of the most powerful names in private equity, the Blackstone Group, was obliged yesterday to reveal a breakdown of its finances as part of its preparations for a stock market flotation. Though little known to the public, Blackstone has snapped up businesses ranging from Madame Tussauds to Center Parcs holiday camps, Cafe Rouge restaurants and America's biggest office landlord, Equity Office Properties.

 

 

Its prospectus reveals that its chief executive, Stephen Schwarzman, enjoyed personal earnings of $398m last year. When Blackstone goes public, he will receive a windfall of at least $449m and he will retain a stake in the business worth $7.7bn.

A colourful figure known in New York for his star-studded parties, Mr Schwarzman, 60, founded Blackstone in 1985 with an investment banking colleague, Peter Peterson, who served as US commerce secretary in the Nixon administration.

 

Mr Peterson, who is still working at 81, took home $212m last year and will get $1.88bn by selling shares on Blackstone's flotation. A third senior executive, Hamilton James, enjoyed annual income of a $97m and stands to receive $147m.

 

Blackstone started with $400,000 and now manages funds of $88bn. These funds are used to buy companies, take them away from the glare of the stock market and restructure them. The firms are often returned to the public markets by being sold several years later.

 

The sheer scale of the wealth amassed by private equity has angered unions. The TUC's general secretary, Brendan Barber, last month warned that the rise of a super-rich class in the industry threatened to "fundamentally change" the nature of British and European capitalism.

 

In the US, the Service Employees' International Union has hit out at the "extraordinary riches" for a handful of individuals at the top of the industry. It says the money should be shared with workers in businesses acquired by private equity who contribute to the industry's huge returns.

 

Blackstone in which the Chinese government has a 10% stake, said the money paid to its top people was simply a reflection of the funds they personally staked at the firm's inception: "One of our fundamental philosophies as a privately-owned firm has been to align the interests of our senior managing directors and other key personnel with those of our investors."

 

A former contemporary of President Bush at Yale university, Mr Schwarzman once remarked that his working schedule never allows him to eat lunch. Blackstone's disclosures reveal that he co-owns a helicopter with Mr Peterson - and that they billed the company $158,500 for its use last year. For longer journeys, they have a part-share in a private jet.

 

Colin Blaydon, director of the centre for private equity at Dartmouth College, New Hampshire, said Blackstone's success meant that investors - including public employee pension funds and university endowment funds - were sharing the benefit.

 

"You've got to look at the way these partnerships are structured," he said. "They can only make this kind of money if their investors, who make 80% of the capital gains, are also doing extremely well."

 

Among the businesses targeted by private equity have been Boots and Sainsbury's in Britain, the casino owner Harrah's in America and the Australian national airline, Qantas.

 

Experts say the low cost of debt and the strength of corporate cashflow are among the factors helping private equity firms to snap up public companies. Ageing demographics in the US and Europe mean pension funds are increasingly searching for greater long-term returns than those traditionally provided on the stockmarket.

 

Blackstone and its US rival, Kohlberg Kravis Roberts, are vying for the title of the world's biggest private equity firm. Mr Schwarzman has emerged as the industry's most prominent figure.

 

He lives in a 35-room Manhattan apartment with his wife Christine, and his 60th birthday party in February featured private performances by Rod Stewart and Pattie LaBelle, an a capella group serenading him with "happy birthday" and a troupe of cadets from New York's Knickerbocker Greys to lead guests - including tycoon Donald Trump and city mayor Michael Bloomberg - to their seats.

 

Further down the ranks, Blackstone's success has paid off for its management. Vice-chairman Tomlinson Hill got $45m last year and chief financial officer Michael Puglisi received $17m. Seven more executives will have shares worth a combined $380m on flotation.

 

In political circles, pressure is mounting for greater transparency and taxation of private equity. The Labour-dominated Treasury select committee is due to hold hearings on the issue today.

 

Eli Talmor, a private equity expert at the London Business School, said the industry's rewards still pale in comparison with the billions earned by top hedge fund managers. "This money isn't really pay for their labour or for their daily involvement," he said. "They're more equivalent to shareholder returns - these partners needed to buy their positions."

 

He said individuals such as Mr Schwarzman could justifiably claim to offer special skills, although he asked: "Are they 500 times more special than someone who makes a million dollars? Probably not. Is there an element of luck here? Probably. But this is equivalent to establishing a start-up and taking it to stardom."

 

http://business.guardian.co.uk/story/0,,2100771,00.html

[Malika]

^^^That bring the ugly envious monster in me...Oh why,Oh why them and not me..

[Ms DD]

It makes me wonder...for instance..what were they like in their youth? How did they spend it? I always like reading about those who made it. But this level of money is ubsurd...absurdness I wouldnt mind having

 

PS Congrats by the way Muniira

[Socod_badne]

This is obscene. A while ago I read somewhere that a top exec from Morgan Stanley or some such was paid nearly $50 million as Xmass "bonus". The poor and rich always existed but the gap between the two has never been this big. Personal debts are at all time high, people have less disposal income than generation or two ago, their purchasing power continues to erode and in the midst of it all you got ultra tiny minority making obscene profits. This is not about "making it" which is a myth unto itself but the rich getting richer at the expense of the poor as borne out by the streams of stats that show the poor continue to slide further and further into poverty.

[Ms DD]

SB

 

For once I do agree with you. It is ridiculously obscene. That is capitalism for you. Although I cant see the benefits of hantiwadaag.

[N.O.R.F]

Dollars! All figures are in dollars so deduct 50% and the figures wont seem so high.

[YoniZ]

Private equity is where the hot money gathers today. Petrodollars is one of the biggest factor in these growth.

London is the best place to grow your ambitions of becoming fund manager.

Faaraxs/Xalimos can have a piece of that cake if they have a finance background and can speak fluent Arabic.

[Gordon Gekko]

"Blackstone started with $400,000 and now manages funds of $88bn"

 

That's the lesson you should learn from the article. Rome wasnt built over a day so if you wanna play hard, you gotta work hard.

[Kashafa]

Originally posted by YoniZ:

Faaraxs/Xalimos can have a piece of that cake if they have a finance background and can speak fluent Arabic.

Very interesting. Could you elaborate a lil more on that ? Why Arabic ? And what would the work entail ? Cuz if it means working your way up the corporate ladder to get that piece of the pie, no thanks, it means you're just another well-fed cow chained to a paycheck.

 

With a finance background and Arabic skillz, can one open shop as a independent-contractor kinda thing ? or once you gain the relevant experience and market knowledge, open your own firm and bill yourself as a financial super-whiz catering to ethnic minorities(Arabs, Somalis etc). Possible ? Entrepenurship, that's how they made their millions. Young 'Malis should do no less.

[YoniZ]

Kashafa, there is something like an equity market fever in the Gulf states right now, created by petrodollar liquidity and London attracts them more than any other city.

 

The best way seems passing one of the FSA exams and gain approved person status for activities such as, broker fund advisor, managing and advising on investments. Some of those exams are not as difficult as the people may think.

 

The second step is to seek working for one of those small investment funds specialised in Middle East area until you build your own client base. One valuable thing in this sort of business is the connections with the 'high net worth' individuals.

 

Gulf Arabs seems to get on well with educated Faaraxs more than any other nationality, ofcourse when you indulge their Mujamala style.

 

With relentles-hardworking and smart-networking skills one Faarax may one day establish his Fund and we all work for him.