SEC Company Response from Carlyle Group (CG) — Nov 17, 2011
Carlyle Group Inc.
Date: Nov. 17, 2011 · CIK: 0001527166 · Accession: 0000950123-11-099328
AI Filing Summary & Sentiment
File numbers found in text: 333-176685
Letter
Division of Corporation Finance Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549
Re:
Dear Ms. Malone:
On behalf of The Carlyle Group L.P., we enclose for your review revised executive compensation disclosure that includes information for 2010, Carlyle’s most recently completed fiscal year. We also provide a hard copy of the revised disclosure that has been marked to show changes from that included under the caption “Executive Compensation” in the above-referenced Registration Statement, as filed on September 6, 2011.
Please do not hesitate to call me at 212-455-3986 with any questions regarding the revised disclosure or any further comments you may have regarding this filing.
Very truly yours,
/s/ Joshua Ford Bonnie
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CORRESP
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filename1.htm
corresp
November 17, 2011
VIA FEDEX AND EDGAR
Re:
The Carlyle Group L.P.
Registration Statement on Form S-1
File No. 333-176685
Chambre Malone, Esq.
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Dear Ms. Malone:
On behalf of The Carlyle Group L.P., we enclose for your review revised executive compensation
disclosure that includes information for 2010, Carlyle’s most recently completed fiscal year. We
also provide a hard copy of the revised disclosure that has been marked to show changes from that
included under the caption “Executive Compensation” in the above-referenced Registration Statement,
as filed on September 6, 2011.
Please do not hesitate to call me at 212-455-3986 with any questions regarding the revised
disclosure or any further comments you may have regarding this filing.
Very truly yours,
/s/ Joshua Ford Bonnie
Joshua Ford Bonnie
cc:
Securities and Exchange Commission
Pamela Long, Esq.
Nudrat Salik
Jeanne Baker
The Carlyle Group L.P.
Jeffrey W. Ferguson, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Jennifer A. Bensch, Esq.
Phyllis G. Korff, Esq.
Executive
Compensation
Compensation
Discussion and Analysis
Compensation
Philosophy
Our business as an alternative asset management firm is
dependent on the services of our named executive officers and
other key employees. Among other things, we depend on their
ability to find, select and execute investments, oversee and
improve portfolio company operations, find and develop
relationships with fund investors and other sources of capital
and provide other services essential to our success. Therefore,
it is important that our key employees are compensated in a
manner that motivates them to excel and encourages them to
remain with our firm.
Our compensation policy has three primary objectives:
(1) establish a clear relationship between performance and
compensation, (2) align long-term incentives with our fund
investors and common unitholders and (3) comply with
applicable laws and regulations.
We believe that the key to achieving these objectives is an
organized, unbiased approach that is well understood, responsive
to changes in the industry and the general labor market, and,
above all, flexible and timely. We seek to pursue these
objectives to the extent that our financial situation and other
factors permit.
Our senior Carlyle professionals and other key employees invest
a significant amount of their own capital in or alongside the
funds we advise. These investments are funded with cash and not
with deferral of management or incentive fees. In addition,
these individuals may be allocated a portion of the carried
interest or incentive fees payable in respect of our investment
funds. We believe that this approach of seeking to align the
interests of our key employees with those of the investors in
our funds has been a key contributor to our strong performance
and growth. We also believe that continued equity ownership by
our named executive officers once we are a public company will
result in significant alignment of their interests with those of
our common unitholders.
Our chairman, Daniel A. D’Aniello and our two co-chief
executive officers, William E. Conway, Jr. and David M.
Rubenstein, are our founders and co-principal executive
officers. We refer to our founders, together with Peter H.
Nachtwey, our former chief financial officer, Glenn A. Youngkin,
our chief operating officer, and Jeffrey W. Ferguson, our
general counsel, as our “named executive officers.”
Mr. Nachtwey’s employment with us ended in the fourth
quarter of 2010, and Mr. Youngkin served as our interim
principal financial officer from October 2010 until March 2011.
Effective on March 28, 2011, Adena T. Friedman became our
principal financial officer.
With the exception of our employment agreement with
Ms. Friedman described below under
“— Employment Agreement with
Ms. Friedman,” we do not have employment agreements
with any of our executive officers. Our founders have entered
into non-competition and non-solicitation agreements with us
described below under “— Summary Compensation
Table — Founders’ Non-Competition and
Non-Solicitation Agreements” and are also subject to
certain limitations on cash compensation pursuant to commitments
made to CalPERS and Mubadala described below under
“— Compensation Elements — Annual Cash
Bonuses.”
Compensation
Elements
The primary elements of our compensation program are base
salary, annual cash bonuses and long-term incentives, such as
the ownership of carried interest. We believe that the elements
of compensation for our named executive officers serve the
primary objectives of our compensation program. However, we
intend to periodically review the compensation of our named
executive officers, and we may make changes to the compensation
structure relating to one or more named executive officers based
on the outcome of such reviews from time to time.
1
Base Salary. For 2010, Mr. Ferguson was
paid an annual base salary of $262,500 and each of our other
named executive officers was paid an annual base salary of
$275,000. We believe that the base salary of our named executive
officers should typically not be the most significant component
of total compensation. Our founders determined that these were
sufficient minimum base salaries for our named executive
officers.
Annual Cash Bonuses. For 2010, our named
executive officers were awarded cash bonuses, part of which were
paid in December 2010 and the balance of which were paid in
March 2011. The amounts of these bonuses were $3,401,750 for
each of our founders, $2,750,000 for Mr. Youngkin and
$1,000,000 for Mr. Ferguson. These amounts were recommended
by Mr. D’Aniello and were approved by all three of our
founders. The subjective factors that contributed to the
determination of the bonus amounts included an assessment of the
performance of Carlyle and the investments of the funds that we
advise, the contributions of the named executive officer to our
development and success during 2010 and the named executive
officer’s tenure at his level. More specifically, in
assessing Mr. Conway’s performance and individual
contributions, we considered his service as the firm’s
Chief Investment Officer, leadership of the investment process
and decisions by our Corporate Private Equity and Global Market
Strategies segments, which executed a significant number of
successful investments in 2010 and his work in overseeing the
management of the existing investment portfolio during this
period. In assessing Mr. D’Aniello’s performance
and individual contributions, we considered his service as the
Chief Investment Officer for our Real Assets funds and his role
in overseeing all administrative operations of our firm. In
assessing Mr. Rubenstein’s performance and individual
contributions, we considered his oversight of our investor
relations team and the capital commitments to our funds that
were raised during the year and his leadership on the strategic
direction of the firm. In assessing Mr. Youngkin’s
performance and individual contributions, we considered his
significant efforts in leading the expansion of our investment
platform through acquisitions, oversight of our business on a
global basis and his role as interim Chief Financial Officer.
Finally, in assessing Mr. Ferguson’s performance and
individual contributions, we considered his oversight of our
global legal and compliance functions as well as the tax
department and his role with respect to the strategic
initiatives undertaken by the firm. Mr. Nachtwey received a
bonus of $1,500,000 for 2010 pursuant to our contractual
arrangements with him. The amounts of the annual bonuses paid to
our founders were limited to $3,401,750 pursuant to a commitment
that we made to CalPERS at the time of their investment in our
firm in 2001. CalPERS sought this limitation to ensure that the
interests of our founders would be aligned with their own. When
Mubadala later invested in our firm in 2007, they sought, and
received, the same commitment.
Carried Interest. The general partners of our
carry funds typically receive a special residual allocation of
income, which we refer to as a carried interest, from our
investment funds if investors in such funds achieve a specified
threshold return. While the Parent Entities own controlling
equity interests in these fund general partners, our senior
Carlyle professionals and other personnel who work in these
operations directly own a portion of the carried interest in
these entities, in order to better align their interests with
our own and with those of the investors in these funds.
Following the reorganization described in “Ownership
Structure,” these individuals will own approximately 45% of
any carried interest in respect of investments made by our carry
funds, with the exception of our energy and renewable resources
funds, where we will retain essentially all of the carry to
which we are entitled under our arrangements with Riverstone.
Pursuant to commitments we made to CalPERS and Mubadala at the
times of those institutions’ investments in our firm, our
founders own all of their equity interests in our firm through
their ownership interests in the Parent Entities and,
accordingly, do not own carried interest at the fund level, but
instead benefit, together with our other equity owners, from the
carried interest and other income that is retained by the firm
through our founders’ ownership interests in the Parent
Entities. In addition, we generally seek to concentrate the
direct ownership of carried interest in respect of each carry
fund among those of our professionals who directly work with
that fund so as to align their interests with those of our fund
investors and of our firm.
2
Carried interest, if any, in respect of any particular
investment is only paid in cash when the underlying investment
is realized. To the extent any “giveback” obligation
is triggered, carried interest previously distributed by the
fund would need to be returned to such fund. Our professionals
who receive direct allocations of carried interest at the fund
level are personally subject to the “giveback”
obligation, pursuant to which they may be required to repay
carried interest previously distributed to them, thereby
reducing the amount of cash received by such recipients for any
such year. Because the amount of carried interest payable is
directly tied to the realized performance of the underlying
investments, we believe this fosters a strong alignment of
interests among the investors in those funds and the
professionals who are allocated direct carried interest, and
thus will indirectly benefit our unitholders.
The percentage of carried interest owned at the fund level by
individual professionals varies by year, by investment fund and,
with respect to each carry fund, by investment. Ownership of
carried interest is also subject to a range of vesting
schedules. Vesting serves as an employment retention mechanism
and enhances the alignment of interests between the owner of a
carried interest allocation and the firm and the limited
partners in our investment funds.
Post-IPO Equity Compensation Expense. As
discussed under “Organizational Structure,” at the
time of this offering our existing owners will contribute to the
Carlyle Holdings partnerships equity interests in our business
in exchange for partnership units of Carlyle Holdings. As
described below under “— Vesting; Minimum
Retained Ownership Requirements and Transfer Restrictions,”
approximately % of the Carlyle
Holdings partnership units received by our existing owners who
are our employees as a result of the reorganization will not be
vested and, with specified exceptions, will be subject to
forfeiture if the employee ceases to be employed by us prior to
vesting. Accordingly, following this offering, we will recognize
expense for financial statement reporting purposes in respect of
the unvested Carlyle Holdings partnership units received by our
personnel, including the named executive officers. The aggregate
grant date fair value of such units for purposes of Financial
Accounting Standards Board Accounting Standards Codification
Topic 718, “Compensation — Stock
Compensation” (“ASC Topic 718”) will appear in
the Stock Awards column of the Summary Compensation Table
reporting compensation for the year in which this offering
occurs.
Summary
Compensation Table
The following table presents summary information concerning
compensation paid or accrued by us for services rendered in all
capacities by our named executive officers during the fiscal
year ended December 31, 2010.
Pursuant to applicable accounting principles, for financial
statement reporting purposes we have historically recorded
salary and bonus payments to our senior Carlyle professionals,
including our named executive officers, as distributions in
respect of their equity ownership interests and not as
compensation expense. However, following this offering, the
salary and bonus payments to our senior Carlyle professionals,
including our named executive officers, will be reflected as
compensation expense in our financial statements and we have
reflected these amounts in the applicable columns of the Summary
Compensation Table below even though they are not recorded as
compensation expense in our historical financial statements.
Similarly, we have reported in the All Other Compensation column
amounts that represent an amount of compensation expense
(positive or negative) that would have been recorded by us on an
accrual basis in respect of carried interest allocations to
executive officers at the level of the general partners of our
funds if we had been accounting for such carried interest
allocations as compensation expense for the fiscal year ended
December 31, 2010. These amounts do not reflect
actual cash carried interest distributions to our named
executive officers. This expense may be negative in the event of
a reversal of previously accrued carried interest due to
negative adjustments in the fair value of a carry fund’s
investments. The ultimate amounts of actual carried interest
distributions that may be earned
3
and subsequently distributed to our named executive officers may
be more or less than the amounts indicated in the Summary
Compensation Table and are not determinable at this time.
All Other
Name and Principal Position
Year
Salary ($)
Bonus ($)
Compensation ($)(1)
Total ($)
William E. Conway, Jr.,
Founder and Co-Chief Executive Officer
(co-principal executive officer)
2010
275,000
3,401,750
6,125(2
)
3,682,875
Daniel A. D’Aniello,
Founder and Chairman
(co-principal executive officer)
2010
275,000
3,401,750
6,125(2
)
3,682,875