The principals of private equity firm Carlyle Group — William Conway, Daniel D’Aniello and David Rubenstein — took $398.5 million in tax-deferred dividend distributions in 2010, which came from a $500 million investment from Abu Dhabi’s Mubadala Development, according to Bloomberg.
Carlyle plans to come public within the next month or so.
In the private equity game, personal compensation seems to be the main priority. Consider that in 2011 the Carlyle principals got roughly $138 million each. And this was not unusual. KKR’s (NYSE:KKR) Henry Kravis and George Roberts bagged $94 million each, Blackstone’s (NYSE:BX) Stephen Schwarzman received $148.5 million and Apollo Global Management (NYSE:APO) Leon Black got $104 million.
But there is even a bigger benefit to the Carlyle deal.
Private equity principals are taxed at a maximum rate of 15% (known as the “carried interest”) — a rate apparently too high for the folks at Carlyle. That’s why they structured the Mubadala financing as debt, which essentially meant the tax could be deferred.
The result? Carlyle must deal with a huge debt load, which could prove onerous if income falls. And let’s face it: It can be tough to get strong returns in today’s markets.
The best approach for IPO investors would be to avoid the Carlyle deal. It looks like most of the benefits already have gone to the principals.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.