Private equity behemoth Blackstone just posted impressive second quarter results – the value of its portfolio increased by 9.5% over the past three months, up from 6.4% in Q1. The performance led to a huge spike in compensation, with Blackstone setting aside over $813 million for its 2,300 or so employees, up 21%. But this year especially, Blackstone staffers are going to need to wait around for a while before they get to enjoy the full bounty.
Despite the increase in overall pay, Blackstone’s incentivized fee compensation – its bonus pool for the quarter – fell by 54% to just under $10 million. At the same time, realized compensation – the money that is usually paid out in carried interest after an investment hits its hurdle rate (usually a 7-8% return) and an investment is exited – fell by 5% compared to last year’s Q2 and is down 47% year-to-date.
So how did the overall pool increase to $813 million? A massive spike in unrealized compensation that may take years to find its way into the hands of top employees. Blackstone earmarked nearly $190 million as unrealized compensation in the form of carried interest in Q2, up 119%. Year-to-date, unrealized compensation has increased by 371% compared to the first six months of 2017. When that will be paid is anyone's guess: Blackstone has been known to sit on investments for anything from five to 11 years.
Yes, cash pay is still massive, giving credence to the popularity of private equity and Blackstone in particular among finance pros. But a very sizable carrot that has grown even larger this year still sits at the end of a stick, making employees wait around for a host of investments to come to fruition. Roughly 24% of the overall comp pool for the second quarter is unrealized.
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