Blackstone Execs Forced to Return $3 Million of Pay

(August 30, 2010) — Private equity firm Blackstone and its executives have agreed to repay $3 million in performance fees previously earned by a real estate fund — Blackstone Real Estate Partners International LP — and are due to pay back another $15.7 million on September 30.

The clawback, which occurs when a fund performs worse than hoped and the private equity executives, or “general partners,” must refund investors, represents the first time fund investors have clawed back cash from executives at the world’s largest private equity company. The repayment may be a glimpse into the effects of financial reform, which encourages clawbacks to align shareholder’s interests with the firm’s employees.

In a filing to the Securities and Exchange Commission (SEC), dated August 6, the firm said the clawback began when the performance fees received to date exceeded the amount due to Blackstone on a cumulative basis, the Dow Jones Newswires reported. The firm’s property buyout funds recorded performance fees totaling $1.74 billion, parts of which were allocated to the firm’s partners. The real estate buyout funds averaged gains of 33% in the first half as commercial property values reached a bottom or began improving in most of the world.

Blackstone Chief Operating Officer Tony James told the news service during the firm’s second-quarter earnings conference call in July that he expects all real estate funds to end up profitable, which means that Blackstone and its executives may recoup some or all of the performance fees given up.