These are different times at Carlyle Group. Not only is there a new CEO in the form of Goldman Sachs’ ex-COO Harvey Schwartz, but there’s a new pay set-up. And it’s a set-up that seems to be a fine thing for employees.
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Like rival funds Apollo and KKR, Carlyle has changed the way it compensates people so that they receive a lower proportion of their pay in salaries and bonuses and a higher proportion in the carried interest that’s paid to senior employees when investments are successfully exited.
Carlyle’s first quarter results suggest the increase in carried interest payments has more than offset the fall in salaries and bonuses for its private equity professionals.
In the first three months of 2024, Carlyle’s spending on salaries and bonuses in its private equity business was $109m, down from $149m one year earlier. However, its spending on “realized performance related revenues compensation” (AKA carried interest) went from $46m to $234m. 🤔
Net spending on compensation therefore went from $195m in Q1 ’23 to $343m in Q1 ’24, driven by the big increase in carried interest payments, which are also coincidentally subject to favorable tax treatment.
This may merely be the start of the soothing mood music: Carlyle said today that its investment exits should increase as the IPO market opens further. The greater the exits, the higher the carried interest.
It’s feasible that Carlyle’s increased compensation spending is merely the result of a rush of hiring in the past year. However, this seems unlikely in light of Schwartz’s parallel commitment to cutting costs.
Instead, it seems that the move to compensating in carried interest has come at precisely the right moment for senior people in private equity there. Juniors may be less happy: they typically only receive a salary and bonus.
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