Carried Interest Moves Into Traditional Finance
Carried interest, once the domain of private equity firms, is now making inroads into traditional finance. Major institutions such as BlackRock and Goldman Sachs are embracing this incentive model to better align executive compensation with the performance of their alternative investment units. This shift reflects a broader transformation in how Wall Street compensates its top brass, blurring the lines between traditional asset management and private equity practices.
Carried interest refers to a share of profits that general partners of investment funds receive as compensation, typically without having to contribute proportional capital. Traditionally associated with private equity and hedge funds, this model rewards long-term performance and ties compensation directly to investment success.
BlackRock and Goldman Sachs Lead the Shift
Both BlackRock and Goldman Sachs have recently implemented carried interest-style incentives for senior executives involved in their alternative asset divisions. These divisions, which include private equity, infrastructure, real estate, and credit strategies, have become critical growth areas for the firms. By adopting this compensation model, the two financial giants aim to attract and retain top talent, while also fostering a culture of accountability and performance.
BlackRock, the world’s largest asset manager, has steadily expanded its presence in the alternatives space. By 2025, the firm had amassed more than $300 billion in alternative assets under management. Goldman Sachs, traditionally known for its investment banking prowess, has also been aggressively growing its asset management arm, with a strong focus on private markets. These strategic moves have elevated both firms into the ranks of the top 10 alternative asset managers globally.
Proxy Advisors Signal Growing Concerns
While this evolution in pay structures may enhance alignment between executives and shareholders, it has not gone unnoticed by proxy advisory firms. Recent scrutiny from groups like Institutional Shareholder Services (ISS) and Glass Lewis suggests that these new compensation models could face pushback.
Proxy advisors have raised concerns about the opacity and long-term implications of carried interest-style pay for public company executives. They worry that such arrangements may complicate efforts to assess executive performance and governance practices. Additionally, these incentives could potentially lead to excessive risk-taking or conflicts of interest if not carefully structured and disclosed.
Both BlackRock and Goldman Sachs have defended their compensation strategies, emphasizing that they are designed to reward long-term value creation and align with the interests of shareholders. Nonetheless, they may need to provide greater transparency and detailed explanations in future proxy statements to address investor concerns.
Industry-Wide Implications
The adoption of carried interest in traditional finance is not limited to BlackRock and Goldman Sachs. Other large asset managers and investment banks are watching closely and may soon follow suit. As the competition for talent intensifies, especially in alternative investments, firms are reevaluating how they motivate and retain senior executives.
This trend also reflects the changing nature of financial services. With fee compression and regulatory pressures affecting traditional revenue streams, many firms are pivoting to higher-margin businesses such as private equity and real assets. As a result, they are adopting compensation models more common in those sectors.
Experts suggest that if carried interest becomes widespread in traditional finance, it could mark a significant shift in executive compensation norms. This would further cement the convergence between private equity and asset management, reshaping the landscape of financial services.
Balancing Performance and Governance
For companies considering carried interest-style pay, striking the right balance will be critical. Compensation plans must be designed to encourage performance without compromising governance standards or shareholder confidence. This will require clear disclosures, rigorous performance benchmarks, and mechanisms to mitigate potential risks.
As regulatory scrutiny increases and shareholder activism grows, firms will need to be proactive in justifying their compensation choices. Transparent communication and alignment with long-term strategy will be essential to gaining investor support.
The Future of Executive Compensation
The integration of carried interest into executive pay structures could become a defining feature of the next phase in financial industry evolution. For now, firms like BlackRock and Goldman Sachs are leading the charge, setting a precedent that others may soon follow.
Whether this trend will enhance firm performance and shareholder value in the long run remains to be seen. However, it is clear that the fight for talent and the pursuit of higher returns are driving significant changes in how Wall Street compensates its leaders.
This article is inspired by content from Fortune. It has been rephrased for originality. Images are credited to the original source.