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BlackRock Chairman Rob Kapito has amassed a retirement pot that could reach tens of millions of dollars thanks to an unusual private equity-style bonus plan tied to the money manager’s $10.6 trillion private-fund business.
Kapito, who has been CEO Larry Fink’s second-in-command since 2007, is the only executive named in From BlackRock Annual presentations by plan beneficiaries. Their link to the performance of individual funds is unusual for a senior executive at a traditional bank or asset manager.
JPMorgan Chase, Goldman Sachs, Morgan Stanley, Franklin Templeton and Invesco all have significant private equity businesses, but the top executives named in their proxy filings do not benefit from similar schemes. This contrasts with publicly traded private equity firms such as Blackstone and KKR, where top executives rake in far more money. pay for the packages by participating in the profits of their funds.
When Kapito retires, he will receive an undisclosed percentage of the profits from some of BlackRock’s private market funds, an arrangement known as “points.” The potential value of the pot doubled from $9.7 million at the end of 2022 to $20.3 million at the end of last year, and was not included in Kapito’s $20.25 million payout for 2023, which was disclosed in the 2024 proxy statement.
In addition to his compensation, he owns 208,373 BlackRock shares, according to his 2024 proxy. As of Tuesday’s close, they were worth about $182 million.
BlackRock said Kapito’s compensation plan was one of several plans aimed at aligning leadership pay with company performance, particularly in private markets, where the firm is seeking to grow. “Attracting and retaining high-caliber talent to support the platform is critical to achieving that goal,” the firm said.
The firm’s private assets under management, which include the funds supporting Kapito’s incentive pay, have grown to $167 billion over the past five years.
Many financial firms pay points to the portfolio managers who run their private funds and the executives who oversee them, but most banks and asset managers choose to pay senior executives in cash or stock, which is tied to the firm’s overall performance.
BlackRock’s compensation practices have already come under fire from proxy advisers and investors. At this year’s annual meeting, nearly 42 percent of shareholders voted against the executive compensation plan after proxy advisers Institutional Shareholder Services and Glass Lewis warned that the pay was higher than peers and not sufficiently tied to performance.
Kapito, 67, co-founded BlackRock with Snitch In 1988, he is seen as a representative of the company’s culture. BlackRock has been grooming a group of next-generation leaders amid speculation about when Kapito and Fink, 71, might retire. Some shareholders and insiders have expressed concern about the length of the succession process.
BlackRock’s board of directors started the retirement fund for Kapito in 2019 “to promote his long-term retention and drive future growth,” according to its 2020 proxy statement. He will continue to receive distributions from the funds for 10 years after he retires.
Had Kapito pulled out at the end of last year, he would have received just $144,739, based on the 2024 proxy. But he will collect more as the funds mature and start returning money to investors. The potential value of the pot doubled last year because some of the funds are starting to show paper profits on their investments.
The 2024 proxy estimated the pot’s final value at $20.3 million. It calculated Kapito’s share of what the assets would have been worth had the funds been forced to liquidate at the end of 2023. Executive compensation experts said this method typically underestimates the pot’s final size because fund managers have the flexibility to wait for optimal prices before selling assets. If the value of the funds declines, their payout declines with it.
“It is in the interest of BlackRock shareholders that all those involved [in private funds] “BlackRock executives have aligned incentives,” said Kevin Murphy, an expert on executive compensation at the University of Southern California’s Marshall School of Business. But, he added, “they never tell us what their percentage is. It seems like that would be helpful” to shareholders. BlackRock declined to specify the percentage in response to questions from the Financial Times.
Some senior executives of banks and other traditional asset managers participate in their groups’ private funds as investors and the benefits they receive are based on the amount of capital they contribute.
ISS declined to comment on Kapito’s retention pay, but its written advice to investors on BlackRock’s executive pay plan said: “The proxy lacks several key disclosures, including quantified targets and individual metric weightings, which are important for assessing the link between pay and performance.”
Glass Lewis said the potential $20 million payment to Kapito did not influence its conclusion that BlackRock’s pay plan showed a “disconnect between pay and performance.”
Additional reporting by Patrick Temple-West in New York