WALL STREET is eager to get its hands on the Blackstone Group’s prospectus to get a peek inside the private equity powerhouse, which is notorious for its secrecy. But investors may be disappointed at what few details they discover if the firm decides to go ahead with the initial public offering it is said to be considering.
There will be a few juicy morsels about Blackstone’s enormous pay packages and perks, and a first true look at the firm’s rate of return, but investors should not expect to see much else.
Some details are already publicly available. Blackstone currently manages $28 billion in private equity funds, $16.7 billion in hedge funds, $13 billion in real estate funds and $6.5 billion in debt funds. It has a restructuring business that has advised companies like Enron, and a blossoming advisory unit for mergers and acquisitions.
But details about how Blackstone financed its $39 billion acquisition of Equity Office Properties Trust? They will not be in there. The valuation of particular assets in the firm’s portfolio? Be prepared not to find them.
In other words, people may see more clearly how Stephen Schwarzman, Blackstone’s co-founder and the man Fortune magazine recently crowned the new king of Wall Street, could afford to throw himself a lavish 60th birthday party earlier this year, an event that featured both Rod Stewart and Patti LaBelle.
But they will not see exactly how he earned that money.
That may prove frustrating for investors hungry to see how lucrative buyout firms have become, as the private equity market has surged in recent years. In recent months, several of Blackstone’s rivals, including the Carlyle Group, Kohlberg Kravis Roberts & Company and the Apollo Group, have been studying the possibility of their own offerings.
Private equity firms have been behind some of the most notable deals over the last two years. Three of the biggest announced leveraged buyouts in history — for TXU, the Texas utilities giant; for Equity Office, a REIT based in Chicago; and for HCA, the health care company based in Nashville— were staged mainly by Kohlberg Kravis, the Texas Pacific Group and Blackstone.
But because the public offering is for Blackstone’s management company, and not for direct stakes in companies it invests in, shareholders will get only a limited glimpse inside the Blackstone empire.
By way of example, take the recent public offering of Fortress Investment Group, a hedge fund based in New York whose market value on Friday was about $10.7 billion. Investors have been privy to the management fees that Fortress has taken and the firm’s investment record, but little else.
Talk of a Blackstone offering has often drawn comparisons with Goldman Sachs, the investment bank that many analysts describe as a giant public hedge fund. Though Goldman has been publicly held since 1999, it has been able to shroud the details of its trading and private equity businesses in secrecy.
Last year, The Financial Times expressed a sentiment about Goldman that is common on Wall Street: “Other areas such as fixed-income, currency and commodities trading remain a black box for the outside world — although one that continues churning out pleasant surprises.”
Investors are hoping for the same results from Blackstone and its rivals.
But buyout firms have already been facing increasing pressure for fuller disclosure from its limited partners, those institutional investors, pension funds and wealthy families that have traditionally provided buyout firms with their capital.
Investors like the California Public Employees’ Retirement System have asked private equity firms to provide quarterly updates of their assets, and in a public Blackstone, it may seem inevitable that such disclosures will be available to general shareholders as well.
Such detailed reporting, however, could undercut what made the private equity industry so lucrative in the first place. For instance, if it were to become public that one of Blackstone’s portfolio companies struggled in one quarter, the sharp focus of limited partners and public shareholders for earnings could put more pressure on the firm to make changes.
That could compound the paradox of a Blackstone public offering. Just last month at an industry conference, Mr. Schwarzman derided the public markets he may now seek to harness, saying, “I think the public markets are overrated.”
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