Buyout Bonanza

As Blackstone Group Readies Its IPO, 3 Top Executives Stand to Earn a Bundle

Blackstone Group chief executive Stephen A. Schwarzman is set to receive as much as $677 million in cash after his firm goes public this summer. His stake in the company would be worth $7.7 billion.

These jaw-dropping figures were reported for the first time in a federal filing yesterday as the private-equity firm enters the final stages of its highly anticipated initial public offering. The Securities and Exchange Commission filing cracked open a window into the secretive private-equity world, revealing just how fantastic the buyout boom has been to its leading executives.

The filing also disclosed that Schwarzman, who makes his money from the returns of the firm's private-equity funds, earned $398 million last year. He was topped among public chief executives only by Apple's Steve Jobs, who earned $647 million, according to Forbes.

With the IPO, Schwarzman, 60, would leap ahead of Rupert Murdoch, Sumner Redstone and Jobs and into the top 30 of wealthiest Americans. At the end of last year, Forbes listed Schwarzman's net worth at $3.5 billion, ranking him 73rd in the country.

Schwarzman's compensation from the IPO "is so far off the scale, it defies any attempts to make sense out of it," said David Menlow, president of the independent research firm IPO Financial Network. "Schwarzman and his crew . . . are not giving away the golden goose with this IPO. All they are doing is giving a taste to new investors. But it's the insiders that are reaping all the financial benefits."

Still, "it is . . . going to be a blowout," Menlow said. "The wrong move is not being in the stock."

As the first major private-equity shop to attempt a public offering, Blackstone has no peer in the public markets, and that has given the firm unusual say in determining its own initial market value.

Market analysts say the offering would be the largest of 2007. With shares set to debut at about $30, the company would be worth $33.6 billion -- more than Viacom or General Motors -- meaning billions of dollars in new wealth for its top officers.

Schwarzman receives cash from the IPO because he agreed to sell a part of his stake, worth $449 million, to public stockholders. If the public demands more of Blackstone's shares than are initially available, which analysts say is likely, Schwarzman can sell more of his stake and reap a total of $677 million, the filing stated. According to a source familiar with the matter, that money will be paid out over a period of eight years.

The SEC filing also revealed the benefits for other Blackstone officers. Co-founder Peter G. Peterson, 80, a former Commerce Department secretary, agreed to sell $1.88 billion of his shares and would retain a 4 percent stake in the company worth more than $1.3 billion. He was paid $212.9 million last year from the returns of the firm's private-equity funds.

Hamilton E. James, 56, chief operating officer, is set to receive as much as $188.5 million in cash from the IPO and keep a 5 percent stake. He earned $97.3 million last year.

These are "big numbers," said Espen Eckbo, founding director of the Center for Corporate Governance. Eckbo said that unlike executive compensation at most public companies, Blackstone's executives make money only if their funds do well. "It is not a free ride," Eckbo said.

Such wealth may prove irresistible to other private-equity firms. Several major buyout shops, including Carlyle Group of the District, are weighing a similar move to the public markets.

Private-equity firms pool massive amounts of money from super-wealthy individuals and financial institutions such as pension funds. The firms use those funds to buy slumping companies, turn them around and sell them at a profit. In its filing, Blackstone said it has $88 billion in assets under its management, more than any other private-equity firm.

Blackstone's IPO also is notable because it sold a 9.7 percent stake in the company, worth $3 billion, to China. In exchange, China agreed to give Blackstone greater access to its markets.

Blackstone declined comment on yesterday's filing because of a quiet period that precedes an IPO.