Carlyle founders reaped nearly $138 million each in 2011

January 10, 2012

The three founders of the Carlyle Group each took home nearly $138 million last year, confirming the widely held view that the intensely private buyout firm was as profitable for its owners as it was for its clients in 2011.

The release of the numbers, in documents filed Tuesday with the Securities and Exchange Commission, came after Carlyle closed out one of its most profitable years ever, returning $15 billion to clients in the first three quarters.

The amounts were not wholly unexpected — founders Daniel A. D’Aniello, William E. Conway Jr. and David M. Rubenstein for years have been ranked by Forbes as among the wealthiest Americans.

Each founder earned $275,000 salary, a $3.54 million bonus and $134 million in income from his share of investors’ profits last year.

The company is expected to begin selling stock to the public later this year and will list itself on the Nasdaq tech index under the ticker CG.

“It basically shows how well they have done as investors,” said Colin Blaydon, director of the private-equity center at the Tuck School of Business at Dartmouth College. “Their compensation is performance-based, explicitly. And they are getting what their performance delivered. That’s my best take on it.”

The executives’ earnings become public during an election year in which many have attacked the growing income chasm between the nation’s wealthy and the middle and poorer classes. President Obama has used economic fairness as a mantra during debates with Republican lawmakers over raising taxes on the affluent to avoid budget cutbacks in crucial services for the needy and to push through an extension of the payroll tax credit and unemployment benefits. Occupy Wall Street demonstrators across the country have been protesting that too much of the country’s resources are held by the richest 1 percent of its citizens.

Carlyle Group filed a 400-page document with the SEC in September as a prelude to the public offering. Tuesday’s filing is the latest in a series of amendments that illuminate the inner financial workings of the profitable private-equity firm, which was founded in Washington in 1987.

The documents also show that Carlyle’s founders plowed much of their cash back into the firm’s deals. Conway, for example, last year put $164 million of his own money into Carlyle investments.

The founders, who hold 60 percent of the company, have said they have no intention of leaving Carlyle in the near future, although the public offering allows them to eventually cash out billions.

Carlyle declined to comment on the founders’ earnings report.

The financial powerhouse is among the world’s largest private-equity firms, with about $150 billion in assets under its control. Forbes magazine last year ranked the three founders, worth an estimated $2.7 billion each, among the richest people in the United States.

Some of that money has found its way to various charities around the country. Rubenstein is the largest donor in the history of the Kennedy Center — where he is chairman of the board of trustees — having given the institution $25 million. Among his other gifts is a $10 million donation to the University of Chicago Law School for scholarships and a $21 million copy of the Magna Carta, which he lent indefinitely to the National Archives. Conway has given away millions to the homeless and recently asked the public for input on how he should dispose of his fortune. D’Aniello has donated to several charities and institutions, including a library in Pittsburgh, where he grew up, and Syracuse University, where he helps sponsor an internship program for entrepreneurs.

Their wealth is not uncommon in the leveraged-buyout industry. Blackstone Group co-founder Stephen Schwarzman, who Forbes estimates is worth $4.7 billion, earned about $400 million in 2006, the year before his company went public.

Henry Kravis and George Roberts, co-founders of buyout firm Kohlberg, Kravis, Roberts, are worth $3.7 billion and $3.4 billion respectively, Forbes estimates. David Bonderman of buyout firm TPG is worth $1.9 billion, according to Forbes.

The private-equity business is built on buying companies, often with large amounts of debt, and then selling them in three to six years for big profits. The industry standard is for a private-equity firm to charge up to a 2 percent management fee on the total amount of the funds and take 20 percent of any profits it earns.

That 20 percent, known as carried interest, is taxed at the capital gains rate of 15 percent instead of the higher income tax rate of 35 percent because the money is deemed to be a capital investment. Democrats, including Obama, say the tax rate on carried interest should be higher, but some Republicans want to lower the rate.

“A number of deals they’ve done over the years were sold in 2011, and because those deals worked out well, [the founders’] carried interest was worth a lot last year,” said Steven N. Kaplan, finance professor at the University of Chicago Booth School of Business. “I would guess in 2009 they didn’t sell anything and they made far less.”

In the first six months of last year, the company’s profits were $770 million. The company earned about $1 billion in 2010.

It also has been profitable for global investors in Carlyle’s 84 funds, which own all or part of 270 companies and properties around the world, including Asian forests, a Brazilian lingerie firm, rental car company Hertz, Nielsen and rest stops along Connecticut highways.

Since its inception in 1987, the firm has generated a 31 percent annual return for those investors, which include pension funds, insurance companies, sovereign wealth funds and wealthy individuals, Carlyle officials have said.

Carlyle’s management fees were $483 million in the first six months of 2011, compared with $402 million for the same period in 2010, according to filings the company made with regulators last fall. Performance fees were $1.2 billion for the first six months of 2011, compared with $111 million in 2009, evidence that Carlyle has enjoyed a very successful year so far despite the slow economy.

Carlyle’s sale of shares to the public has been anticipated for years and follows two other major private-equity rivals, Blackstone Group and Kohlberg Kravis & Roberts.

Aside from its founders, the firm is owned by Mubadala, the investment arm for the emirate of Abu Dhabi, with 9 percent, and California’s pension system, which owns 5 percent. Carlyle’s 100 partners own the remainder.

Thomas Heath is a local business reporter and columnist, writing about entrepreneurs and various companies big and small in the Washington Metropolitan area. Previously, he wrote about the business of sports for The Post’s sports section for most of a decade.
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