Private-Equity Payday: Carlyle Founders Get $402 Million –

Amid a swirl of controversy about the private-equity business, industry powerhouse Carlyle Group revealed that its three founders together earned more than $400 million last year.

News of the payday comes as Republican presidential candidate Mitt Romney has been bombarded with criticism for the work of his former firm, private-equity giant Bain Capital, including from fellow Republican Newt Gingrich. Mr. Romney’s campaign has indicated it is prepared to defend his work as a part of free-market capitalism. Bain has said the company’s focus is on working with management teams “to build great companies and improve their operations.”

[carlyle0111] Bloomberg News

David Rubenstein

At Carlyle, the earnings for David Rubenstein, William Conway and Daniel D’Aniello amounted to salary of $275,000, a bonus of $3.5 million, and a $134 million share of the firm’s investment profits apiece, according to a document filed with the Securities and Exchange Commission late Tuesday.

The filing is ahead of Carlyle’s anticipated initial public offering later this year, likely in the second quarter, according to someone close to the matter. A representative for the firm declined to comment.

Washington D.C.-based Carlyle, like other buyout firms, claims 20% of the profits of the firm’s investments. The $402 million the three executives shared—in addition to their salaries and bonuses—represented more than half of the 20% fees that Carlyle claimed on the firm’s investment gains in 2011.

The three also saw hefty returns on their personal investments in the firm’s funds, separate from their take of the profits. Carlyle reported distributions to Messrs. D’Aniello, Conway, and Rubenstein of $77.6 million, $70.9 million and $56.8 million, respectively. The filing doesn’t specify what portion of those distributions consisted of their original investments.

The founders continue to plow money back into their funds. Last year, Mr. Conway, a co-chief executive, invested $164 million, Mr. D’Aniello, Carlyle’s chairman, put in $98 million, and Mr. Rubenstein, the other co-CEO, invested $97 million, the filing says. They have made outstanding commitments to invest an additional $490.7 million to the funds, the filing says.

Within Carlyle, the compensation didn’t cause many ripples. Some executives were unaware of pay details of the three founders, one person at the firm said, adding that the three top partners were generally assumed to have been making more than half of the firm’s profits.

“It’s certainly a sizable payday and yet in this sector, it’s not unusual,” said David Wise, senior principal at management consulting firm Hay Group. “People go into private equity because at the end of the rainbow, they can have a payout like this.”

When Blackstone Group LP was preparing its own public offering in 2007, it reported that in 2006 its top five executives shared in $771.5 million in cash distributions, their full compensation at the time. Chairman and Chief Executive Officer Stephen Schwarzman was paid $398.3 million, senior chairman Peter Peterson’s share was $212.9 million and Hamilton James, Blackstone’s president and chief operating officer, collected $97.3 million, according to a securities filing.

The Carlyle payday resulted from an especially active and successful period last year. The buyout firm has reported economic net income, the industry’s preferred measure of earnings, of $579 million through the first nine months of last year, the most recent data available from the company. It handed back $15 billion to its investors during those nine months, representing profits from the firm’s buyout deals as well as original money invested by clients. That was a record for any nine-month period for Carlyle and almost double the previous best period.

The firm, founded in 1987, originally forged close ties within political circles, hiring former senior politicians such as former Defense Secretary Frank Carlucci, who served as chairman of Carlyle from 1992 to 2003. Former President George H.W. Bush and former Secretary of State James A. Baker III also served as advisers. Early on, some of Carlyle’s deals were in the defense industry.

But in recent years Carlyle has cut ties with former politicians, emerging as a more-global buyout player than some of its peers, with early deals in China. Carlyle has launched many more, smaller buyout funds than rivals, sometimes with a narrow focus, and executives receive more of their compensation from the profits they specifically generate, rather than the overall firm’s gains.

Though the Carlyle pay may cause a backlash, some clients said they had little to criticize after a year of big gains from the sale of interests in companies including China Pacific Insurance Group Co., Kinder Morgan Inc. and Dunkin’ Brands Group Inc. “They obviously had a very good year and are incentivized to create gains for investors and are entitled to 20% of those gains,” says an executive with an investment in Carlyle funds. “Investors had to have made a lot of money” for the trio to make more than $400 million last year.

Good for them