Blackstone IPO: an excellent opportunity

From an activity, which was supposed to prosper in discretion and secrecy, private equity has now become highly visible. It has thrived on publicity and skilful public relations, which helped not only to improve the flow deals but also to deflect raising criticism (remember “locust” accusation by the chairman of German SDP party).

Widely reported speculation that Blackstone Partners, one of the best-known and biggest private equity groups, decided to go public is a logical consequence of this trend. So far, the company declined to comment.

Nevertheless, the investment community largely takes for granted that Blackstone will float its management group in the coming months. The announcement was generally well-received, as making sense for Blackstone Group, by increasing its range of funding opportunities and making it more feasible to potential targets staff. At the same time, there is a strand of somewhat cynical opinion that if this company is going public then the private equity market must be peaking and that Blackstone managers are out to take advantage of gullible investors. A typical of such attitude is an online comment by a Real Money contributor, Cody Willard, which makes his view plain in the heading of his comment, “Steer clear of Blackstone.”

Well, everybody is entitled to their opinion and Blackstone managers, for all their philanthropic interests, are not known for their altruism. Nevertheless, I strongly disagree with Willard & Co. As a matter of fact, I believe that Blackstone represents a potentially excellent opportunity to invest in

- Fast growing sector

- Highly-profitable business

- Proven management with a superior track record.

Anybody who believes that the private equity is a passing craze, which will disappear at the first market downturn, does not understand the dynamics of financial sector. Private and public sides of the business not only coexist but feed off each other. Thus, the tremendous growth of exchange-based derivatives business is accompanied by an even higher expansion of OTC (over-the-counter) derivatives. Similarly, the rise of private equity parallels and complements the transformation of stock exchanges, following their widespread public listing.

Private equity is technically less complex and easier to comprehend than the proprietary trading, which has become the main profit engine of many well-known investment banks. When practiced with requisite skills, it offers very high returns. And in case of Blackstone, returns are not only high but also consistent: over 20% per year since 1987 or twice the return of S&P 5000.

In terms of transparency of business and track record of the management, Blackstone is a better opportunity than the recently floated hedge fund management company, Fortress.

Cynical view of Blackstone IPO reminds of similar comments made in 1999 when Goldman Sachs went public. Those who did not invest in Goldman missed a 300% capital appreciation. And Goldman is highly dependent on volatile trading and hedge funds revenues.

Details of Blackstone IPO are not yet known. When they are published on EDGAR, they deserve close and positive consideration. It may well be that the terms of the offer will be ludicrous and one may decide to pass. But to reject the idea of a basis on what one call “financial Groucho Marx” reasoning: one should not invest in a company that wants me as an investor, is ridiculous.