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Bridgepoint went public. Executive rewards stayed private

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Blackstone’s Stephen Schwarzman made $610.5m in pay and dividends last year. KKR’s Henry Kravis and George Roberts received $80.6m and $84.5m respectively.

The regular disclosure of the US private equity executives’ income, which dwarfs that of most other business leaders, often causes a fuss. They can now look with envy at their newly listed UK peer Bridgepoint, where top executives’ true rewards remain hidden from view.

This summer Bridgepoint became the first private equity firm to list on the London Stock Exchange since 1994, with a £300m initial public offering and a market valuation that quickly rose to more than £4bn.

Those new shareholders have already enjoyed a strong return on their investment. But they cannot know the full extent of management’s own returns owing to Bridgepoint’s use of a complicated structure.

While Bridgepoint states its executives’ salaries and bonuses, it does not report the amount of money individuals receive in the form of “carried interest” payments, a 20 per cent share of profits in the funds their firms raise and invest.

One filing from more than a decade ago offers a glimpse into the potential size of these payments, with Bridgepoint’s executive chair William Jackson owning a 6.6 per cent share in the vehicle that paid carried interest on one fund. If that level remains consistent, it could be worth millions of pounds and several times his salary and bonus.

UK-listed companies are obliged to disclose senior managers’ pay. But Bridgepoint’s approach does not appear to have broken any rules — and that could set a precedent for other secretive private equity tycoons who want the benefits of a London listing without having to reveal their personal fortunes.

“Lots of other groups in Europe have thought about listing, but the senior partners have decided, ‘I don’t need that spotlight because it would tell the world how wealthy I am . . . It would get politicians frothing’,” a senior private equity figure based in London said.

“Bridgepoint is a testing ground. Maybe those firms are now seeing that you can get away with giving just so much information, if you do it cleverly, and perhaps the opprobrium won’t come.”

Line chart of Share price (pence) showing Bridgepoint's stock value has risen sharply since flotation

The carried interest gap

The Financial Conduct Authority requires UK-listed companies to disclose the total pay of senior managers “for services in all capacities to the issuer and its subsidiaries”.

The carried interest payments are not remuneration, but a return on investments that incur capital gains tax rather than income tax, a person close to Bridgepoint said. 

A group including current and former Bridgepoint employees received £494m in carried interest in 2019, the year the fund that owned Spanish motorsports company Dorna started paying out carried interest. That dwarfed the company’s £53m earnings before interest, tax, depreciation and amortisation that year. In 2020, carried interest payments were £41m.

Top executives’ share of these sometimes life-changing sums are disclosed for listed private equity firms in the US, where public filings show they account for a large portion of total compensation at Blackstone and KKR.

Some of the assets Bridgepoint has owned: Burger King, MotoGP and Pret A Manger

£494m

Amount of carried interest paid in 2019, the year after Bridgepoint sold Pret A Manger

£53m

Bridgepoint’s earnings before interest, tax, depreciation and amortisation the same year

£27bn

The amount Bridgepoint has under management, according to its website

Bridgepoint says it does not make similar disclosures because the money flowed through a series of corporate entities that the private equity firm does not control.

Bridgepoint’s IPO prospectus, the main document used to market its shares to investors, does not disclose who received money from these vehicles or how much they received — or even, with one exception, what the entities are called.

Research by the Financial Times and Peter Morris, an associate scholar at Oxford university’s Saïd Business School, has identified 10 of the entities that were set up to distribute carried interest, all of which list Bridgepoint as a “person with significant control” at Companies House.

A person close to Bridgepoint said the reference to control in the prospectus was based on an accounting definition, which is separate from the Companies House regime, and that Bridgepoint does not ultimately control the vehicles.

“If you’re not disclosing the basics of your compensation it’s difficult to understand your motivations, your performance, your incentives,” said William Birdthistle, professor of law at Chicago-Kent College of Law. “It’s kind of fundamental in a capitalist system. If you hide it, you’ve cloaked a lot of information about how you’re running your business.”

One large shareholder said its team tasked with examining executive pay had yet to look at Bridgepoint’s set-up. The situation suggests a disconnect between the portfolio managers who rushed to buy the stock and asset managers’ governance or stewardship teams.

The rest of the iceberg

Bridgepoint’s executive chair William Jackson, 57, who joined the company’s predecessor NatWest Equity Partners in 1986 and was part of a management buyout that formed Bridgepoint in 2000, is likely to be among the top recipients of carried interest.

Recent documents do not disclose his share of the payouts, but a 2006 filing for the vehicle through which Bridgepoint’s third fund would have paid out carried interest, had it been more profitable, showed his share via a family trust was 6.6 per cent.

If Jackson were entitled to 6.6 per cent of the carried interest paid to individuals across the private equity firm, it would have totalled £32.6m in 2019 and £2.7m in 2020, though it is impossible to tell how close to the true figure this is. A person close to Bridgepoint said carry and co-investment holdings differ from fund to fund.

Bridgepoint’s prospectus shows that Jackson received a £700,000 salary and £630,000 bonus in 2020 and Adam Jones, 52, who joined Bridgepoint as chief financial officer from Pret A Manger, received a £325,000 salary and £442,500 bonus. Jackson directed £300,000 of his bonus to a Covid-19 hardship fund for charitable causes and Jones directed £65,000 of his salary to it, the document shows.

© Charlie Bibby/FT

Although the lion’s share of the carried interest currently goes to individuals, the listed company has a 5 per cent share of carried interest from Bridgepoint’s most recent mid-market buyouts fund, which it aims to increase to between 22.5 and 35 per cent of future funds, according to the prospectus. 

Bridgepoint said it had “followed all relevant UK listing disclosure regulations in our prospectus, as confirmed by our listing, regulatory, legal and accounting advisers” and that “to suggest otherwise is wholly misleading and inaccurate”.

The FCA said it “cannot comment on individual cases but prospectuses are ultimately the responsibility of the companies that produce them and, for prospectuses relating to shares, their directors”.

While Bridgepoint is the first buyouts group to list in the UK for decades, the Swedish buyouts firm EQT, which listed in Stockholm in 2019, also used a model that enabled it not to disclose carried interest payments to individual senior executives. EQT says on its website that its “sustainability framework” focuses on “transparency and accountability”.

EQT declined to comment on why it did not disclose the information, and Finansinspektionen, the Swedish financial regulator, declined to comment.

UK-based peer Intermediate Capital Group also does not disclose carried interest. However, at the time of its listing in 1994, the company was a credit-focused fund that did not compensate executives using carried interest.

Bridgepoint, which has about €27bn of assets under management, said in its prospectus that in setting executive directors’ pay there would be a “strong emphasis on the fairness of remuneration outcomes across the workforce”. But the gaps in information about top executive pay means this will be impossible to verify externally.

The lack of information also means that, when shareholders are given a chance to vote on Bridgepoint’s remuneration policy, they will do so without knowing the full picture of how much the top executives receive.

This looks odd from a US perspective. “The ‘say on pay’ wouldn’t make much sense if you’re hiding from shareholders what you get in carried interest,” said John Coffee, a law-school professor at Columbia University.

Line chart of Share prices rebased in local currency, Jan 2020 showing Share prices of listed private equity groups have soared

But Arnaud Giblat, an analyst at Exane BNP Paribas who has an “outperform” rating on Bridgepoint’s stock, said he was “quite comfortable” with not knowing how much individuals received, since he knew the overall amounts of carried interest paid out, and thought the company’s corporate governance was “strong”.

“My recommendation is on the basis of what’s there [for shareholders] . . . You get a share of the management fees, there’s growth ahead, the valuation’s attractive. If they’re making a killing out of it, good for them, as long as everyone’s interests are aligned.”

Separate to the carried interest disclosure is information on share ownership. The prospectus said Jackson owned 1.6 per cent of Bridgepoint immediately before it listed, and 1.1 per cent afterwards, with no other “interest in the share capital of the company”.

A publicly available statement of capital dated July 1, shortly before the IPO, indicates that once Jackson’s wife and three children are included, the family’s collective stake was 4 per cent — worth £115m at the IPO offer price. Since then the share price has risen 46 per cent.

Frederic Pescatori, a partner who joined in 2009, is the only individual named in the prospectus as holding more than 3 per cent. That is because, unlike colleagues, he does not appear to have split his ownership with family members.

Several other long-serving senior figures are not named as shareholders in the prospectus because their solo stake is below the 3 per cent threshold for disclosure, even though their family’s total interest is above that level.

Listing rules require the disclosure of each individual’s shareholding not the holdings of family members, a person close to Bridgepoint said. 

The dearth of information about a listed company is a sign of a wider malaise, said Morris from Oxford university.

“This is postmodern capitalism, fragmenting reality in a way that makes it impossible to see the big picture,” he said. “The last line of defence is regulators and policymakers. As things stand, they seem to be, wittingly or not, conniving in a process that will see ever more of the corporate sector in major economies disappear behind a veil.”

Additional reporting by Attracta Mooney



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IPOs / FFOs

Abu Dhabi’s Adnoc plans 7.5% stake float of oil drilling unit

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Abu Dhabi National Oil Co updates

The Abu Dhabi National Oil Company plans to list a 7.5 per cent stake in its drilling unit via an initial public offering on the Gulf emirate’s stock exchange next month.

Adnoc Drilling is 95 per cent owned by Adnoc, which has in recent years embarked on a modernisation drive including diversifying its investor base and unlocking cash from its infrastructure base.

In 2018, when Baker Hughes acquired a 5 per cent stake in the business, Adnoc Drilling had an equity value of $10bn.

“Adnoc Drilling’s planned value creation opportunities, including a major rig fleet expansion and well drilling program, ideally position the company to take full advantage of emerging opportunities,” said Sultan Al Jaber, Adnoc’s chief executive.

The offering, which is open to domestic and international investors, is expected to take place in October on the Abu Dhabi Securities Exchange (ADX) subject to market conditions and regulatory approvals. The size of the offering could be increased.

The United Arab Emirates, which is already the third-largest producer in Opec, is committed to raising its output capacity from 4m barrels a day to 5m barrels a day.

The Gulf state earlier this year clashed with its larger neighbour, Opec kingpin Saudi Arabia, by refusing to endorse a planned Opec+ production increase. Abu Dhabi argued that its “baseline”, the level from which Opec quotas are calculated, should be increased. A compromise deal was clinched in July that raised the UAE’s baseline quota from 3.2m barrels a day to 3.5m barrels a day.

Adnoc Drilling, the largest drilling company in the Middle East by fleet size, is the sole provider of drilling services to Adnoc. In 2020, Adnoc Drilling’s revenues were $2.1bn, with a profit of $569m.

The deal would be the second IPO launched by Adnoc since the 2017 listing of its distribution arm, the largest operator of petrol stations and convenience stores in the UAE.

The national oil company has separately opened its refineries and oil and gas pipelines businesses to international investors. It is also seeking to sell stakes in its power plants and other infrastructure.

Adnoc earlier this year started trading futures of its flagship crude oil, Murban, on ICE Futures Abu Dhabi, a commodities exchange based in the capital’s financial district.

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Chemicals distributor Azelis seeks to raise €880m in Brussels IPO

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IPOs updates

Speciality chemicals distributor Azelis is seeking to raise €880m in an initial public offering in Brussels in what will be one of the sector’s largest listings this year.

The Antwerp-based company, which is owned by Swedish buyout firm EQT, is targeting a valuation of more than €5bn, according to people familiar with the matter.

The IPO would make Azelis the world’s fourth-largest listed chemicals distributor in a highly fragmented €117bn market. As well as using the IPO’s proceeds to cut some of its €1.6bn of debt, the company also plans to make further acquisitions.

“As a public company, we believe we will be able to fully capitalise on growth opportunities, continuing to complement our strong organic growth with accretive acquisitions,” said chief executive Hans Joachim Müller.

Müller said he hoped to expand operations in Asia and gain a foothold in Latin America, where Azelis does not have a presence.

Founded in 2001 from the merger of French and Italian distributors, Azelis’s business extends beyond distribution. It also has a network of laboratories that test products and add new ingredients to existing products for clients.

The company expects tougher regulations in markets from animal nutrition to cosmetics to push more chemical producers to outsource distribution and formulation services to larger external providers.

Azelis laboratory
In addition to distribution, Azelis also has laboratories that test products and add new ingredients to existing products for clients © Ben Connell

Azelis generated revenues of €2.2bn last year, while its operating profit climbed 10 per cent from 2019. It employs 2,800 people across 56 countries.

Demand for chemicals has rebounded rapidly from the pandemic’s initial hit, sending valuations for the sector soaring and handing EQT a chance to capitalise.

Nouryon, the former chemicals arm of Akzo Nobel that was acquired by US buyout firm Carlyle in 2018 in a €10bn deal, is also set to go public.

Although Azelis has only a 2 per cent market share, it is enough to make it one of the sector’s largest players alongside Germany’s Brenntag, IMCD from the Netherlands and Illinois-based Univar Solutions. In a sign of investor appetite for the sector, Brenntag’s share price is at an all-time high.

Müller said that because the company’s global service centre was in Belgium, Brussels was the best place to list. It would be the largest IPO on the Brussels Stock Exchange since 2007.

EQT will retain a stake in the company following the IPO, which Azelis had considered before the Swedish private equity firm led a buyout of the business in 2018.



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Petershill/Goldman Sachs: private capital seeks paradoxical public market boost

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Goldman Sachs Group updates

Groucho Marx was suspicious of any “exclusive” club whose standards were so low he could join it. The UK’s dyspeptic long funds may have similar reservations about Petershill Partners. This offshoot of Goldman Sachs buys stakes in private equity groups and hedge fund managers. The investment bank plans to float Petershill, which may be worth about $5bn, in London. Anyone with a broking account will be able to buy shares previously only available to select Goldman clients.

The Wall Street bank will remain a gatekeeper in another respect by investing the capital of Petershill Partners in return for fees. These look generous, even though a minimum 7.5 per cent annual charge would be levied on income from investee companies, rather than on fund value.

Goldman, which is diversifying into asset management, will have earned its money if it uses its powerful network to make lucrative investments.

If you think that will happen, Petershill will be a worthwhile investment itself. If not, shrug and pass on. A stock market is a place to test business propositions. It is not a corporate Hall of Fame, though that is how London sometimes self-defeatingly seems to see itself.

Petershill invests in asset managers rather than their products. This spares end investors two tiers of management fees. Typically, it purchases minority stakes in private capital managers when they issue equity to finance expansion.

Private capital is hot at the moment. You might therefore ask why Petershill is seeking a mooted $750m from unfashionable public investors rather than that source.

The reason is that alternative asset managers from Apollo to Pershing Square prize permanent capital, which they can deploy for the long term. The stock market is a good supplier. You might also see adroit timing in Petershill’s plan to float when private capital management is, in the words of one buyout boss: “The hottest of hot spaces at the peakiest of market peaks”.

However, the mooted price of about $5bn would equate to only around 22 times estimated net income in the 12 months to June. That is a lot lower than US peer Blue Owl and quoted UK buyout group Bridgepoint, which are trading at more than 30 times forward earnings.

Routinely presented as polarities, private and public market capital remain inextricably entwined, as this deal would prove.

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