Blackstone’s Stephen Schwarzman made $610.5m in pay and dividends last year. KKR’s Henry Kravis and George Roberts received $80.6m and $84.5m respectively.
The regular disclosure of the US private equity executives’ income, which dwarfs that of most other business leaders, often causes a fuss. They can now look with envy at their newly listed UK peer Bridgepoint, where top executives’ true rewards remain hidden from view.
This summer Bridgepoint became the first private equity firm to list on the London Stock Exchange since 1994, with a £300m initial public offering and a market valuation that quickly rose to more than £4bn.
With the industry already under heightened scrutiny in the UK after a flurry of takeover bids for companies such as Wm Morrison, Aggreko and John Laing, pay at the latest private equity firm to go public is another potential source of tension.
But Bridgepoint’s complicated structure keeps new shareholders in the dark about its management rewards.
UK-listed companies are obliged to disclose senior managers’ pay. But Bridgepoint’s approach does not appear to have broken any rules — and that could set a precedent for other secretive private equity tycoons who want the benefits of a London listing without having to reveal their personal fortunes.
“Lots of other groups in Europe have thought about listing, but the senior partners have decided, ‘I don’t need that spotlight because it would tell the world how wealthy I am . . . It would get politicians frothing’,” a senior private equity figure based in London said.
“Bridgepoint is a testing ground. Maybe those firms are now seeing that you can get away with giving just so much information, if you do it cleverly, and perhaps the opprobrium won’t come.”
The carried interest gap
The Financial Conduct Authority requires UK-listed companies to disclose the total pay of senior managers “for services in all capacities to the issuer and its subsidiaries”.
While Bridgepoint states its executives’ salaries and bonuses, it does not report the amount of money individuals receive in the form of “carried interest” payments, a 20 per cent share of profits in the funds their firms raise and invest. Those payments are not remuneration, but a return on investments that incur capital gains tax rather than income tax, a person close to Bridgepoint said.
A group including current and former Bridgepoint employees received £494m in carried interest in 2019, the year the fund that owned Spanish motorsports company Dorna started paying out carried interest. That dwarfed the company’s £53m earnings before interest, tax, depreciation and amortisation that year. In 2020, carried interest payments were £41m.
Top executives’ share of these sometimes life-changing sums are disclosed for listed private equity firms in the US, where public filings show they account for a large portion of total compensation at Blackstone and KKR.
Amount of carried interest paid in 2019, the year after Bridgepoint sold Pret A Manger
Bridgepoint’s earnings before interest, tax, depreciation and amortisation the same year
The amount Bridgepoint has under management, according to its website
Bridgepoint says it does not make similar disclosures because the money flowed through a series of corporate entities that the private equity firm does not control.
Bridgepoint’s IPO prospectus, the main document used to market its shares to investors, does not disclose who received money from these vehicles or how much they received — or even, with one exception, what the entities are called.
Research by the Financial Times and Peter Morris, an associate scholar at Oxford university’s Saïd Business School, has identified 10 of the entities that were set up to distribute carried interest, all of which list Bridgepoint as a “person with significant control” at Companies House.
A person close to Bridgepoint said the reference to control in the prospectus was based on an accounting definition, which is separate from the Companies House regime, and that Bridgepoint does not ultimately control the vehicles.
“If you’re not disclosing the basics of your compensation it’s difficult to understand your motivations, your performance, your incentives,” said William Birdthistle, professor of law at Chicago-Kent College of Law. “It’s kind of fundamental in a capitalist system. If you hide it, you’ve cloaked a lot of information about how you’re running your business.”
One large shareholder said its team tasked with examining executive pay had yet to look at Bridgepoint’s set-up. The situation suggests a disconnect between the portfolio managers who rushed to buy the stock and asset managers’ governance or stewardship teams.
The rest of the iceberg
Bridgepoint’s executive chair William Jackson, 57, who joined the company’s predecessor NatWest Equity Partners in 1986 and was part of a management buyout that formed Bridgepoint in 2000, is likely to be among the top recipients of carried interest.
Recent documents do not disclose his share of the payouts, but a 2006 filing for the vehicle through which Bridgepoint’s third fund would have paid out carried interest, had it been more profitable, showed his share via a family trust was 6.6 per cent.
If Jackson were entitled to 6.6 per cent of the carried interest paid to individuals across the private equity firm, it would have totalled £32.6m in 2019 and £2.7m in 2020, though it is impossible to tell how close to the true figure this is. A person close to Bridgepoint said carry and co-investment holdings differ from fund to fund.
Bridgepoint’s prospectus shows that Jackson received a £700,000 salary and £630,000 bonus in 2020 and Adam Jones, 52, who joined Bridgepoint as chief financial officer from Pret A Manger, received a £325,000 salary and £442,500 bonus. Jackson directed £300,000 of his bonus to a Covid-19 hardship fund for charitable causes and Jones directed £65,000 of his salary to it, the document shows.
Although the lion’s share of the carried interest currently goes to individuals, the listed company has a 5 per cent share of carried interest from Bridgepoint’s most recent mid-market buyouts fund, which it aims to increase to between 22.5 and 35 per cent of future funds, according to the prospectus.
Bridgepoint said it had “followed all relevant UK listing disclosure regulations in our prospectus, as confirmed by our listing, regulatory, legal and accounting advisers” and that “to suggest otherwise is wholly misleading and inaccurate”.
The FCA said it “cannot comment on individual cases but prospectuses are ultimately the responsibility of the companies that produce them and, for prospectuses relating to shares, their directors”.
While Bridgepoint is the first buyouts group to list in the UK for decades, the Swedish buyouts firm EQT, which listed in Stockholm in 2019, also used a model that enabled it not to disclose carried interest payments to individual senior executives. EQT says on its website that its “sustainability framework” focuses on “transparency and accountability”.
EQT declined to comment on why it did not disclose the information, and Finansinspektionen, the Swedish financial regulator, declined to comment.
UK-based peer Intermediate Capital Group also does not disclose carried interest. However, at the time of its listing in 1994, the company was a credit-focused fund that did not compensate executives using carried interest.
Bridgepoint, which has about €27bn of assets under management, said in its prospectus that in setting executive directors’ pay there would be a “strong emphasis on the fairness of remuneration outcomes across the workforce”. But the gaps in information about top executive pay means this will be impossible to verify externally.
The lack of information also means that, when shareholders are given a chance to vote on Bridgepoint’s remuneration policy, they will do so without knowing the full picture of how much the top executives receive.
This looks odd from a US perspective. “The ‘say on pay’ wouldn’t make much sense if you’re hiding from shareholders what you get in carried interest,” said John Coffee, a law-school professor at Columbia University.
But Arnaud Giblat, an analyst at Exane BNP Paribas who has an “outperform” rating on Bridgepoint’s stock, said he was “quite comfortable” with not knowing how much individuals received, since he knew the overall amounts of carried interest paid out, and thought the company’s corporate governance was “strong”.
“My recommendation is on the basis of what’s there [for shareholders] . . . You get a share of the management fees, there’s growth ahead, the valuation’s attractive. If they’re making a killing out of it, good for them, as long as everyone’s interests are aligned.”
Separate to the carried interest disclosure is information on share ownership. The prospectus said Jackson owned 1.6 per cent of Bridgepoint immediately before it listed, and 1.1 per cent afterwards, with no other “interest in the share capital of the company”.
A publicly available statement of capital dated July 1, shortly before the IPO, indicates that once Jackson’s wife and three children are included, the family’s collective stake was 4 per cent — worth £115m at the IPO offer price. Since then the share price has risen 46 per cent.
Frederic Pescatori, a partner who joined in 2009, is the only individual named in the prospectus as holding more than 3 per cent. That is because, unlike colleagues, he does not appear to have split his ownership with family members.
Several other long-serving senior figures are not named as shareholders in the prospectus because their solo stake is below the 3 per cent threshold for disclosure, even though their family’s total interest is above that level.
Listing rules require the disclosure of each individual’s shareholding not the holdings of family members, a person close to Bridgepoint said.
The dearth of information about a listed company is a sign of a wider malaise, said Morris from Oxford university.
“This is postmodern capitalism, fragmenting reality in a way that makes it impossible to see the big picture,” he said. “The last line of defence is regulators and policymakers. As things stand, they seem to be, wittingly or not, conniving in a process that will see ever more of the corporate sector in major economies disappear behind a veil.”
Additional reporting by Attracta Mooney