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In my recent Carried Interest Is A Hidden Gem<\/strong><\/a> post, I include an excerpt from Bruce Flatt’s (CEO of Brookfield Corporation) February 13, 2025 Letter To Shareholders in which he explains Carried Interest and why it is a hidden gem.<\/p>\n Coincidentally, on February 14 2025, BlackRock (BLK) communicated its Board’s decision<\/a> (see Form 8-K) to modify Larry Fink’s (Chairman and CEO) compensation package starting with his 2024 year-end total compensation package. Fink is now entitled to receive a percentage of the carry distributions generated from a composite of BLK’s flagship private markets investment funds that had fundraising activity in 2024. The rationale for this carry incentive is that it further aligns CEO compensation to the:<\/p>\n The additional comp incentive comes following BLK’s aggressive expansion into rapidly growing private markets through several 2024 acquisitions. BLK spent ~$25B on infrastructure investment fund Global Infrastructure Partners<\/a> (‘GIP’) and private credit business HPS Investment Partners<\/a> (‘HPS’).<\/p>\n On June 30, 2024, BLK announced its intent to acquire Preqin<\/a> (‘PRQ’) for ~$3.2B cash;the UK Competition and Markets Authority has very recently approved this acquisition. BLK can now <\/span>finalize its purchase of the private market data firm thus enabling it<\/span> to offer indexes for private markets.<\/p>\n Trump wants to end the special treatment of ‘carried interest’ from which private equity and hedge fund firms greatly benefit. While Trump intensifies his talks over a broad tax cut bill that is core to his domestic economic agenda, this sets up a potential clash with America’s wealthiest financiers – the same group that publicly expressed their support for him.<\/p>\n Lobbying fights in Washington regarding the special tax treatment of carried interest have gone on for the past 2 decades. Many Republican and some Democrat politicians have resisted efforts to change the tax treatment of carried interest; this helps the private equity industry maintain the status quo.<\/p>\n Early in Biden’s presidency, an attempt to make changes failed. Trump also failed in 2017.\u00a0The 2017 tax bill, however, extended the number of years an investment must be held (from 1 to 3) before the preferential treatment kicks in. If the complete elimination of the preferential treatment is unsuccessful, it is quite possible a compromise may be reached wherein the 3 year investment holding period is extended.<\/p>\n I last reviewed BLK in this January 18, 2025 post<\/a>. At that time, shares traded at ~$1006. Using this share price and the broker forward adjusted diluted EPS estimates, the following were the forward adjusted diluted PE levels:<\/p>\n Using BLK’s current ~$974 share price and current broker forward adjusted diluted EPS estimates, the forward adjusted diluted PE levels are:<\/p>\n While BLK may not currently be ‘on sale’, relatively recent GIP, HPS, and PRQ acquisitions greatly expand the company’s ability to significantly increase future earnings.<\/p>\n America’s wealthiest financiers are in business to make money and in prior posts, I suggest we ‘follow the money’.<\/p>\n Changes in the treatment of carried interest is inevitable but I anticipate pushback from Wall Street titans. Any changes, therefore, may be ‘watered down’.<\/p>\n BLK was my 18th largest holding at the time of my 2024 Year End FFJ Portfolio Review<\/a><\/strong>. On February 14 I acquired 20 shares @ $972.56 in a ‘Core’ account within the FFJ Portfolio<\/strong><\/a> bringing my exposure to 180 shares.<\/p>\n I intend to opportunistically continue to increase my BLK exposure.<\/p>\n I wish you much success on your journey to financial freedom!<\/p>\n Note:<\/em><\/strong> Please send any feedback, corrections, or questions to [email\u00a0protected]<\/span><\/a>.<\/em><\/p>\n Disclaimer<\/em><\/strong>: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your research and due diligence. Consult your financial advisor about your specific situation.<\/em><\/p>\n<\/p><\/div>\n\n
Is The Special Treatment Of Carried Interest About To Change?<\/strong><\/h3>\n
Valuation<\/strong><\/h3>\n
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Final Thoughts<\/strong><\/h2>\n