Is Blackstone To Blame?

There’s been a lot made of how Steve Schwarzman kept an unusually low profile today, even though his firm just priced the largest IPO in five years. Some think he’s just watching QVC and waiting for an item worth $7 billion. Or perhaps flipping through his autographed copy of Holly Peterson’s The Manny.

But I have an alternate theory for why Schwarzman has kept his head down: He doesn’t want to get pelted with eggs by all of the venture capitalists, buyout pros and hedge fund managers who are angry at him.

In less than 12 hours, Schwarzman has gone from prince to piñata. Why the rapid fall from grace? Because many people blame Schwarzman and Blackstone for the carried interest legislation that could raise taxes from the capital gains rate of 15% to the ordinary income rate of around 35 percent. I’ve gotten a couple dozen emails saying something of the sort, and have seen it bandied about the blogosphere. So now to the important question: Is Blackstone to blame?

Rep. Sanders Levin (D-MI), lead sponsor of the carried interest tax bill, says no. He told CNBC today that he began examining the issue before Blackstone filed for its IPO. Same answer from Mark Heesen, president of the National Venture Capital Association. He first heard rumblings of such a bill at least four or five months back.

But the manicured masses are up in arms for a reason. Blackstone was the spark that lit what had previously been idle talk. Not just the IPO, but also the way in which Schwarzman carried himself. The lavish birthday party, the public churlishness and the $300 stone crabs (not the crabs per se, but letting a WSJ reporter know about them). I even wrote a column back in February about how Schwarzman should tone down the birthday party, because such ostentatious displays would make life difficult for the industry at large. Suffice to say, my advice was not heeded.

Blackstone and Schwarzman became grist for nearly everyone’s mill. Journalists. Labor leaders. Legislators. Etcetera. They experienced great success, and then had to let everybody know about it. Just another reason why private equity firms are wary of added transparency (and perhaps why they should think twice before going public themselves)…

Someone close to Blackstone today complained that it just isn’t fair that the firm is being blamed for possible tax changes. It has produced extraordinary returns for its investors – state treasuries, corporate pension funds, university endowments, charitable foundations, etc. – and why shouldn’t Schwarzman be allowed to spend his dough the way he sees fit?

And he’s right. The blame isn’t really fair. But neither is politics, and Blackstone should have seen this coming.