Private Equity Titans Get Even Richer With Corporate Conversions

(Bloomberg) -- Shares of several U.S. private equity firms have jumped since they announced plans to convert themselves into corporations, making some of the world’s wealthiest people even richer.

Steve Schwarzman’s net worth surged 20% to $16.2 billion since April, when Blackstone Group LP said it would abandon the partnership structure to attract a wider array of investors. Blackstone shares rose to a record of $47.48 Wednesday, two days after the conversion was finalized.

The billionaire founders of KKR & Co., Apollo Global Management LLC and Ares Management Corp. have also seen their fortunes increase by several hundred million dollars following conversion announcements. Shares of all four firms have outperformed the S&P 500.

The passage of the 2017 tax overhaul, which lowered the corporate tax rate to 21% from 35%, curtailed the tax advantages that come with publicly traded partnerships relative to corporations. This prompted several private equity firms to review their corporate structures.

Switching to a corporation allows for shares to be included in stock-market indexes and eliminates the need for investors to file cumbersome K-1 tax forms. Many mutual funds and other institutional investors avoid publicly traded partnerships.

Carlyle Group LP has yet to announce plans for a conversion. But co-Chief Executive Officer Kewsong Lee, when asked about the matter during a May 1 conference call, suggested that the firm is evaluating its options.

“The benefits we’ve seen from the conversions have not gone unnoticed by us,” he said.

To contact the reporters on this story: Anders Melin in New York at amelin3@bloomberg.net;Jasmine Teng in New York at jteng50@bloomberg.net

To contact the editors responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, Peter Eichenbaum

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