BlackRock, the world’s largest asset manager, is taking a page from the private equity industry’s playbook, announcing this month that it will offer a slice of the profits from the firm’s private market funds to a select group of senior executives…
At BlackRock, the firm’s new executive carry program comes with a caveat that effectively builds a talent moat around its senior alts team: If you leave to join a competitor, start a rival fund, or engage in what BlackRock deems “competitive activity,” your stake in the new carry program ticks down to zero. BlackRock defines competitive activity as anything “that competes with the business operations of BlackRock, the general partner, or any of their respective subsidiaries, affiliates, and successors, as determined by the general partner in its sole discretion.”
According to the disclosed provisions, both vested and unvested portions of carry distributions will be forfeited if an executive is found by BlackRock to have engaged directly or indirectly in competitive activity…
Generally, the provisions serve a dual purpose, said Aalap Shah, managing director of compensation firm Pearl Meyer.
“The main thing a firm would want to do is keep the team together that they’ve assembled,” he said. The provisions can also serve as “a deterrent” to competitors. “Basically, it’s going to be expensive to steal a team member because they’re going to ask you for a lot of money” to make up for the carry they’re walking away from.
BlackRock isn’t alone in requiring unvested and vested carry to be wiped out if an executive engages in competitive activity, which is known in the industry as being a “bad leaver.” But forfeiting vested carry as well as unvested is less common, comp experts agreed.
On the other hand, the approach buys time. A flourish in BlackRock’s carry program that distinguishes it from some staid market practices is that the vesting schedule is backloaded, meaning executives don’t vest at all until year three of a five-year vesting schedule. Steffen Pauls, a former managing director at KKR, called the backloaded vesting schedule “unusual but investor-friendly” to BlackRock’s customers. Similarly, Shah said a five-year vesting time frame is fairly typical generally, but he often sees 20% annual vesting.