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BlackRock has awarded chief executive Larry Fink a carried interest sweetener for the first time, underlining the increasing importance of private markets to the world’s largest asset manager.
The $11.6tn group said on Friday that its board had agreed to pay its founder a percentage of carry distributions linked to the performance of a group of its flagship private markets investment funds that raised money last year.
It said that the incentive “further aligns CEO compensation to both the evolution of BlackRock’s private markets platform and associated creation of long-term shareholder value,” as well as the “corresponding expansion” of Fink’s executive responsibilities in the wake of a $28bn dealmaking spree last year.
Carried interest generally refers to the share of profits which accrue to managers of so-called alternatives funds such as private equity and hedge funds.
“Carry”, as it is known, is favourably taxed at long-term capital rates, which tend to be lower than ordinary income rates. In the US, carry is typically taxed at a rate of 20 per cent, compared with a top federal income tax rate of 37 per cent.
Most banks and traditional asset managers use carry to reward their fund managers, but it is very unusual to include it in the pay of top executives in those industries.
However, BlackRock’s decision to award Fink carry follows a similar move by Goldman Sachs, which last month handed for the time chief executive David Solomon and president John Waldron bonuses based on the performance of its alternative assets funds in addition to stock and cash.
The carry incentive will be added to Fink’s annual pay starting from his 2024 year-end compensation package, the filing said.
The move reflects how BlackRock has rushed to expand its share of the fast-growing and lucrative market for private assets, and to diversify beyond the low-cost ETFs and index products that are its bread and butter.
Last year BlackRock announced three deals linked to private markets. Its $12.5bn purchase of Global Infrastructure Partners, which closed in the fourth quarter, made it the world’s second-largest manager of private infrastructure assets.
In June it announced the acquisition of UK private markets data group Preqin for £2.55bn, before closing out the year with a $12bn deal in December for private credit manager HPS Investment Partners. These two deals are due to be completed by mid-2025.
Large asset managers and banks are increasingly starting to pay their senior leaders in the same way as leading private equity firms, to try to strengthen their ability to attract and retain talent.
Earlier this month Donald Trump told lawmakers that he wants to end the special tax treatment of carried interest, setting up a potential clash with America’s wealthiest financiers.