(Bloomberg) — A combination of increased deal activity and changes in pay structures has driven big gains in the payouts investment firms made to employees this year.
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KKR & Co. distributed $843 million in compensation tied to realized gains, often called carry, to its rainmakers in the first nine months of the year, almost double the payouts in the same period of 2023. Carlyle Group Inc., paid out about $542 million, up from $286 million from January through September of last year.
Across KKR, Apollo Global Management Inc., Carlyle, Blackstone Inc., TPG Inc. and Ares Management Corp., performance-related compensation is up about 33% from the first nine months of 2023.
The bump in pay comes as these alternative asset managers are reporting gains in fee-related earnings, or income derived from managing a growing pile of assets. What’s more, a long-sluggish deal market is starting to wake up, thanks to central banks cutting rates, according to executives from investment firms.
As a result, these firms are starting to exit more of their investments. In its third-quarter results, Apollo cited “a few sizeable monetizations,” or sales, within its flagship private equity funds as the reason its realized performance fees jumped to their highest level since 2021.
In their third-quarter letter to investors, Brookfield Asset Management Chief Executive Officer Bruce Flatt and President Connor Teskey said the firm sold assets across its strategies in the third quarter.
“We are seeing greater monetization activity, leading to capital starting to be returned to clients, creating a more constructive fundraising environment across the industry,” the executives wrote.
Meanwhile, the market for initial public offerings is expected to improve, KKR Chief Financial Officer Robert Lewin said on the company’s third-quarter earnings call. Activity in its own portfolio is already picking up.
“The one area of the capital markets that has been a little bit more sluggish is the IPO market, but we do expect that to change over the coming quarters,” he said. “If you look back over the past 12 months, we’ve had four IPOs of size.”
The rise in performance-related compensation also reflects changes that some of the firms made to shift more carry to dealmakers in exchange for a smaller cut of fee-related earnings.