Goldman's pot is even sweeter
Commentary: Investment income adds to the Street's best paychecks
By David Weidner, MarketWatch
Last Update: 12:01 AM ET Feb 22, 2007
NEW YORK (MarketWatch) -- Ever notice that Goldman Sachs Group never seems to get involved in executive-pay scandals?
No backdating, no hidden payments, no corporate-jet brouhahas.
That's because largesse at Goldman comes in a variety of above-board forms. Just when you think it can't get any worse, that these guys can't get any richer, it does and they do.
Wall Street's gold standard of investment banking detailed in a regulatory filing Thursday that its executives -- who already had been awarded record compensation -- also had received investment income. A lot of it.
Like many firms on the Street with private-equity arms, Goldman allows its employees and those close to them to invest along with the institutions. That means when Goldman closes the $19 billion fund it's been working on, part of the proceeds may go to bankers inside the company. See full story.
When those funds close or have annual payouts, employees, their spouses, their families or their favorite foundations and charities get a slice proportional to their original investment. In the event of closure, investors either get all of their money back plus profits, or whatever's left after investments go bad. In Goldman's case, only the first rule applies.
For example, according to the filing, Chief Executive Lloyd Blankfein took home $9.79 million in investment income. Henry Paulson, the former chief executive, received $7.39 million. General counsel Gregory Palm received $7.6 million. In all, 10 executives took home more than $40 million.
Now, that's the total on the check that Goldman wrote to those executives. What's unclear is how much of those funds were the original amount invested. In other words, how much was profit?
A Goldman (GSThe Goldman Sachs Group, Inc
spokesman said that the company did not break out that information. But the proxy includes a footnote that gave the amount of money returned to the executives by the Goldman-run fund.
For instance, of Blankfein's nearly $10 million payday, $2.67 million was money he had invested over many years. That's doesn't mean the difference, $7.12 million, was profit on that amount. It just means Blankfein received $7.12 million in returns on his investments; he may have tens of millions still invested in Goldman funds.
Adding it up
The bottom line is that we can't say for sure how much those 10 top executives are making on their investments. It could be 200% or 2%. We do know, however, that Goldman-run investments paid them $26 million, with about $15 million split among Blankfein, Paulson and Palm.
For Blankfein, this is the CEO equivalent of icing. Already the recipient of a $54 million pay package, Blankfein's total compensation including pay, bonuses, options and investment income made in-house was close to, if not beyond, $60 million.
He's not the only one. The company also revealed Wednesday that co-presidents Gary Cohn and Jon Winkelried saw about $53 million each in cash and stock compensation last year. Cohn also received $3.4 million from company-managed investments. Strangely, Winkelried received $621,270 -- some or all of the money he invested over the years and not a penny more, the proxy said.
Goldman has been disclosing investment income from company-run investments for a few years now for executives reaping more than $60,000 a year. But investment income is likely to become part the discussion when the Securities and Exchange Commission gets serious about new compensation-disclosure rules for public companies.
The glory of all this is that you or I can't invest alongside Goldman brass in the Goldman Global Private Equity Fund XVIII, or whatever they're going to call this new megafund. As plebeians, we can hope or wish that our pension fund (if there are any funded ones still out there) or retirement-fund manager gets crazy with a little bit of the assets.
Judging by my 401(k) statements, no one at Fidelity is investing in Goldman Sachs private-equity funds.
We all know how hot private equity is. Goldman-run funds or those run by specialty-buyout shops like Kohlberg Kravis Roberts & Co. are responsible for about one out of five of all mergers these days.
Private-equity funds raised a record $401 billion during 2006, as 612 new funds were launched in that span, according to Private Equity Intelligence. This amount exceeded the previous record of $311 billion set the year before.
How many people you know got into those funds?
At least a small part of that money came from Wall Street big shots. With opportunities like that, who needs backdating?
David Weidner covers Wall Street for MarketWatch. |
