Carta has recently examined ownership trends in private equity: 2024.
Hamza Shad, Christina Cheledinas, Janet Deng, Lucy Wang noted in the second annual Ownership Trends in Private Equity report that the update “provides a status update on the progress private equity has made toward the commitment to expand employee ownership.”
According to the report from Carta, it’s been a momentous year for private equity.
As stated in the Carta report, PE deal volume in Q2 was the “strongest it’s been in the previous two years, marking a rebound in activity after a prolonged slump.”
Carta reveals that their team also saw “more PE firms—including industry giant Blackstone—make public commitments to grant equity to employees beyond the top brass, something that’s long been table stakes in the venture world.”
As mentioned in the report from Carta, Blackstone joins “other leading PE firms that have adopted this approach in recent years, including KKR, TPG, and Warburg Pincus.”
The power of company equity is to “ensure employees, management, and investors are all aligned and incentivized to perform their best.”
Carta further noted that employee ownership “can benefit a company’s bottom line, thus providing stronger returns for investors while also giving employees the opportunity to participate in the profits they help create.”
Carta supports more than 2,700 PE-backed companies, “including both LLCs and corporations, that are backed by over 600 PE firms.”
Through their real-time, aggregated, and anonymized data, they hope to “provide insight into the state of ownership in the PE sector.”
Carta’s second annual Ownership Trends in Private Equity report “provides a status update on the progress private equity has made toward the commitment to expand employee ownership.”
The number of employee stakeholders on Carta has “increased 172% since 2019, but the rate of growth has slowed since 2022.”
Few companies have hundreds of employee stakeholders: Most PE-backed companies “have at least one employee equity owner, but only about 20% have over 100.”
Rise in profits interest units (PIUs): The issuance of PIUs by PE-backed LLCs has “become more common across different stakeholder groups, especially to employees as a vehicle for equity sharing.”
Nearly 400,000 stakeholders have received interests on Carta
As of Q2 2024, over 382,000 stakeholders across Carta’s 2,700-plus PE-backed businesses had received “ownership interests of some kind.”
This figure has effectively doubled in the four years since Q2 2020 as “a result of both Carta’s growing market share and a rise in the issuance of interests.”
Stakeholders at PE-backed companies include “management teams, investors, employees, and advisors.”
Each of these groups has grown significantly “in terms of the number of stakeholders on Carta since 2019.”
The number of stakeholders increased the most “for those in management—over 200% from Q1 2019 to Q2 2024.”
The group with the second largest growth “was employees, increasing by 172%.Growth in employee stakeholders has slowed drastically since 2022.”
From 2019 to 2022, the number of new employee stakeholders rose each year.
That trend changed in 2023 and H1 2024, however, “following a significant deceleration in private equity deal volume.”
Fewer companies getting acquired by PE has “meant that fewer new equity grants have been issued by PE-backed companies.”
The number of new employee stakeholders in 2023 “was 17,494, a 35% decrease in comparison to 2019.”
Although PE-backed companies are still creating more employee owners, it is at “a much slower rate than before.”
This slowdown in employee ownership “also hit the venture world, as the 2022 financial downturn negatively affected employee compensation packages.”
As with employees, fewer investors and management team members at PE-backed companies are “becoming stakeholders compared to pre-2022.”
The Carta report concluded that “the recent decline in new stakeholder numbers hasn’t been as steep for investors and management as for employees.”
