IPO riches loom for Blackstone founders

Stephen Schwarzman and Peter G. Peterson, who started Blackstone Group two decades ago with $400,000, stand to collect a combined $2.33 billion from the largest initial public offering by a leveraged buyout firm.

Schwarzman, 60, could cash in as much as $677.2 million of his stake during the IPO, and still walk away with a 24% interest in the company valued at as much as $7.7 billion, the company said in a Securities and Exchange Commission filing Monday.

The sale of 12.3% of Blackstone’s management arm is expected to value the entire company at just more than $32 billion.

Investors in the IPO will be given little voting rights in Blackstone, however.

Blackstone said Monday that Schwarzman made $400 million in 2006, almost double the combined compensation for the chief executives of Wall Street’s five biggest investment banks.

Blackstone’s top five executives, including Schwarzman, earned a combined $771.5 million in 2006. Blackstone expects to record significant losses for a number of years following its IPO, because of amortization and compensation costs.

Peterson, co-founder and chief operating officer, would get $1.88 billion from the IPO and retain a 4% stake valued at about $1.3 billion. Peterson, 80, who plans to retire by the end of 2008, received $212.9 million in compensation last year.

The compensation detailed in Monday’s filing largely reflects not salary but instead a huge return on the executives’ economic stake in the firm.