December 6, 2023

Investment Banking

Let Your Investment Banking Do The Walking

Blackstone’s Schwarzman receives over $1bn for second straight year

Stephen Schwarzman, the founder of Blackstone Group, received record income of nearly $1.3bn in 2022, as assets under management and profits rose at the world’s largest private equity firm.

Schwarzman’s haul came mostly from more than $1bn in dividend payments due to his ownership of nearly 20 per cent of the private equity group’s shares. In addition, he earned $190mn in “carried interest” pay as Blackstone completed the sale of assets, most of which were arranged before Russia’s full-scale invasion of Ukraine and rising interest rates sent equity markets into a tailspin.

Bolstered by Blackstone’s rising dividend, Schwarzman’s income surpassed by 15 per cent the $1.1bn the chief executive received in 2021, even as a 42 per cent decline in Blackstone shares cut the value of his holdings by more than $12bn.

Late last year Blackstone shares were hit hard after the New York-based investment group limited investor redemptions from a fast-growing $71bn real estate fund, as wealthy individual investors pulled money due to concerns about the long-term health of the property market and a need to raise cash.

The decision to limit withdrawals from the fund, called Blackstone Real Estate Income Trust, or Breit, cast doubt on Blackstone’s future growth and has caused stock analysts to lower their expectations for the firm’s fee-based earnings. Similar Blackstone funds have also faced pressure from investors seeking to withdraw money, the Financial Times has reported.

Despite the volatile conditions, Blackstone’s rising overall profitability helped other top executives take home nine-figure incomes, led by president Jonathan Gray, who received nearly $480mn in pay and dividends in 2022, a nearly 50 per cent increase from the prior year, according to filings released on Friday.

Gray’s pay was bolstered by more than $78mn in Breit shares that were delivered to him in early 2022 as a result of bonuses earned from the fund’s 30 per cent gain in 2021.

“Significant portions of our most senior executives’ listed compensation relate to 2021 performance that, due to the timing of awards, was paid the following year,” Blackstone said, adding that incentive-based pay came from the first half of 2022 when the firm recorded “the highest period for realisations in our history”, referring to asset sales.

The income earned by Schwarzman and Gray has dwarfed the pay of executives in investment banking. Schwarzman took home more than 30 times the pay of Jamie Dimon and David Solomon, respectively the chief executives of JPMorgan Chase and Goldman Sachs.

Joseph Baratta, the head of Blackstone’s private equity unit, and Michael Chae, its chief financial officer, received more than $50mn in 2022, again surpassing the earnings of top banking heads.

Top executives at private equity firms typically receive salaries that are modest compared to their entitlement to receive “carried interests”, giving them a share of the profits on successful investments. Founders and top executives such as Schwarzman are also large shareholders, meaning that they receive sizeable dividend income. Schwarzman’s and Gray’s shares are worth $20.6bn and $3.7bn, respectively, at current prices.

Distributable profits at Blackstone, which pays out the majority of its profits in the form of dividends, rose 7 per cent to $6.6bn last year, allowing it to pay $4.40 per share in dividends.

Blackstone’s about 4,700 employees collectively received total pay and benefits of $3.5bn, or nearly $1mn per employee, although this is skewed somewhat by the top earners. That represented a drop from 2021, when pay and benefits exceeded $8bn, or more than $2mn per employee.

The group’s assets under management ended last year at a record $975bn and it holds nearly $6.8bn in unrealised performance-based profits on its books.

Blackstone said it had “a performance-driven compensation model that is built on long-term alignment with our investors”.