Blackstone’s IPO Through Pete Peterson’s Lens

Blackstone co-founder Peter Peterson tells all about the run-up to The Blackstone Group’s 2007 IPO, in a book to be published June 8.

“The irony did not escape me that a private equity firm, which emphasized why their private companies did better over the longer term, should be going public,” he writes in The Education of an American Dreamer.

Blackstone’s June 2007 IPO made Peterson a billionaire and put him, and CEO Steve Schwarzman, firmly into the public spotlight.

But Peterson, who retired in 2008 as Blackstone’s Senior Chairman, writes that none of them anticipated the “firestorm” that followed Schwarzman’s lavish 60th birthday party, held at New York’s Park Avenue armory which included a guest list of celebrities and financiers.

“I was at the same table as Jack Welch and LIz Smith,” he writes. “Though they said little, their eyes said a lot. We just knew it was one of the most expensive parties we had ever been to. Yet I don’t think any of us anticipated the press firestorm that followed.”

Peterson said he was “simply astonished” when Blackstone’s underwriters valued the company at $31 billion and describes the day of the IPO when he called his bank to make sure that the wire transfer of proceeds of his sale of Blackstone shares had gone through. “I was an instant billionaire!” he recounts.

But Peterson, who has pledged much of his wealth to philanthropy, notes the aftermath:

“The clouds of the populist storm swirled and deepened and, in the wake of our public offering and the now famous public sixtieth birthday party, came down on the private equity industry in Washington. At issue is a proposal to more than double the tax on gains made from carried interest, the term used to describe the share — generally amounting to 20 percent — of any profits that private equity managers realize, above some fertile or minimum annual rate of return of 8 percent to 9 percent. For reasons that strike me as unfair, and bad tax policy, the tax increase would not apply to thousands of real estate, oil and gas, resource and family partnerships that are identical in structure to the private equity partnerships. Whatever the outcome, it will prove to be a difficult, defining political battle.”

He continues that given the huge inequality of income in America “I can certainly understand the argument that a genuine fat cat such as myself should pay more taxes. The question is, What is the right way to go about it?”

“My position on the need to increase revenues, including increasing marginal taxes on us fat cats, ideally in conjunction with spending restraints, is greeted with very restrained enthusiasm by my Wall Street and Republican friends,” he writes.

He foresees that in the short to medium term, the restructured banks, tough fund-raising environment, more regulation and higher taxes would “greatly complicate the outlook and management of private equity firms.”

Reuters received an advance copy of the book on Wednesday, and has not yet read the whole book. Extracts are taken from a chapter entitled “Becoming a Force” which focuses on his years at Blackstone. Picture taken from publisher TwelveBooks’ website.