Carlyle Founders Back Up Their Bets With $1.3 Billion of Their Own Money

  • Conway, D’Aniello, Rubenstein contributions outpace peers
  • KKR fixed-dividend policy lets it put more money in funds

Carlyle Group LP’s three founders plowed $1.28 billion of their own money into the firm’s funds in the past three years, far outpacing contributions by their peers.

Bill Conway, Carlyle’s co-chief executive officer and chief investment officer, put an average $181.8 million a year into the Washington-based firm’s funds in the past three years, according to calculations based on a regulatory filing this month. Chairman Dan D’Aniello added an average $127 million a year, and co-CEO David Rubenstein had an average annual contribution of $116.4 million.

That compares with the average $39.4 million a year that KKR & Co.’s Henry Kravis added to his firm’s funds and the $15.1 million average annual contribution by Leon Black to Apollo Global Management LLC’s offerings, according to those firms’ filings. KKR’s George Roberts put in $31.7 million a year, and Apollo’s Josh Harris and Marc Rowan invested $14.8 million and $7.5 million, respectively, a year.

Private equity executives are some of the wealthiest financiers, drawing most of their income from dividends on their ownership in their firms. Apollo’s Black received $131.9 million last year, KKR’s Kravis took home $116.1 million and Carlyle’s Rubenstein got $73.1 million.

Blackstone Group LP, whose CEO Steve Schwarzman took home $425 million in 2016 and is the wealthiest of the buyout titans, subtracts fund distributions from contributions and only discloses a net figure in its annual regulatory report.

‘Comforting’ Feature

Private equity executives typically contribute money to their funds, in addition to commitments from their firms’ balance sheets, in order to show outside investors that their interests are aligned.

“There’s nothing more comforting to an investor than knowing a firm or fund manager is investing significant personal capital into their own fund,” said David Fann, the CEO of TorreyCove Capital Partners, which advises pension plans that invest in buyout funds. “It connotes alignment, commitment and confidence.”

KKR has taken a unique approach to aligning itself with investors. In 2015 the firm instituted a fixed quarterly dividend policy, which lowered payouts to executives such as co-CEOs Kravis and Roberts but allowed it to expand its balance sheet and put more of its own money in its funds.

About 52 percent of KKR’s $13.3 billion in balance sheet assets as of Dec. 31 were in investments alongside clients. The firm and employees have committed more than $1 billion to its latest private equity fund, which is seeking as much as $12.5 billion from outside investors.

“Between our employees and the firm, we aim to be one of the largest investors in our funds,” said Suzanne Donohoe, the head of KKR’s client and partner group.

About 27 percent of Apollo’s balance sheet assets were in its investments as of Dec. 31.

“When we think about alignment of interests, we are looking for situations where the fund manager’s economics are such that they can create significantly more wealth for themselves by earning profit on investments in their fund than they can through the fund’s management fees,” said Brian Rodde, a managing director at Makena Capital Management, which invests in private equity funds.

The buyout titans also have much of their net worth tied to their firms’ performance via their stock ownership. Many of them, including Apollo’s Black, KKR’s Roberts and Carlyle’s Rubenstein, haven’t sold any stock since their companies’ initial public offerings.

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