Blackstone Briefing

In case you’ve been in solitary confinement for the past 18 hours, The Blackstone Group last night priced its landmark IPO at the high end of its range. It sold 133.3 million units at $31 per share, for a $4.13 billion IPO take that values Blackstone at nearly $33.5 billion. It also shot up nearly 30% at market open this morning, and opened at $36.45 per share (it rose past $40 per share, but is now back below $37 per share). It represents the largest U.S. IPO since CIT Group went public in July 2002, although is less than the $5 billion KKR raised for a co-investment fund last year on the Euronext.

Ok. Those are the facts. Now here is some Q&A, with me providing both the Qs and As:

Were the IPO buyers wise?
Yes. They all knew there would be a first-day jump, and Blackstone is not the type of stock that’s going to crater.

Are retail buyers wise?
No. Buying into this thing at $40+ per share is a mistake. I don’t prescribe to the “don’t buy when smart guys are selling” theory, because Schwarzman, et. all aren’t really selling in this case. Moreover, they sold a stake to AIG a few years back, and AIG certainly got the better end of that deal. But I would still be concerned about the possible tax changes – which could actually be a double-whammy if both the Blackstone Bill and some sort of carried interest bill pass. Plus, the only semi-comparable is Fortress Group, which has floated back down to earth and stalled since its first-day trading spike.

Hey Dan, didn’t you write last year that if you could invest in any private equity firm, you would choose Blackstone? How does that square with you recommending against retail purchase?
Because I was referring to a limited partner position, not a public stock position. Limited partners get regular distributions, whereas stockholders can only generate liquidity by selling the security. LPs have detailed insight into the portfolio holdings, whereas stockholders are handed blinders. Limited partners have key-man provisions and other oversight provisions, whereas stockholders have none.

Will KKR follow Blackstone’s lead?
Well, CNBC’s Charlie Gasparino yesterday reported that KKR has retained underwriters, and that the prospectus could be less than a month away. I still think this will be like the BDC phenomenon after Apollo priced. Everyone else filed, and then no one else went public. None of these firms need investment capital – a common misperception in some reporting on Blackstone – which means these deals are entirely about liquidity for firm founders and senior managers. As I’ve written before, I’m just not sure the promise of added wealth will be enough to convince Rubenstein, Kravis, etc. to risk the scrutiny, added tax bills, possible junior pro resentment, etc. that can come with an IPO. I think they’d prefer the legacy. (note: I’ll most likely be wrong about this).

Did Chris Cox make the right move in ignoring a request that the Blackstone IPO be delayed?
Yes squared. Democratic Reps. Henry Waxman and Dennis Kucinich yesterday sent Cox a letter asking for such an intervention until Congress could hold hearings, because the IPO could present “investors and the public with new and undisclosed risks.” As I wrote yesterday, the risks associated with this IPO are legion, but they also are exhaustively disclosed. If anyone doesn’t read it carefully and still invests, then perhaps they should be called to testify on this nation’s crumbling educational system. Blackstone and its attorneys did their job.