Going Public

Well it is, of course, with great interest that we waited for Blackstone to file for its initial public offering. In the midst of intense public debates surrounding transparency, is this a bid by Blackstone to capture the public’s trust? Hardly. Instead, the listing is surrounded by unease over its motivation, which has only been intensified by the manner in which the firm has listed and the entity that will result.

Why would one of the world’s largest private equity funds want to go public – especially when Schwarzman himself, now famously, has expressed his scepticism over public listings as recently as February 27?

“I think the public markets are overrated. To divert yourself like that and then take on that cost is really not worth it,” he is reported as saying.

Clearly, he now thinks it is worth it, so what will Blackstone actually gain from the listing and will it mean greater transparency?

Well, a quick look at the listing documents and yes, Blackstone, if all goes to plan, has a lot to gain. Transparency on the other hand is unlikely to be imminent.

Unlike KKR, which in effect floated an individual fund, not the actual firm itself – Blackstone is listing its management company. In all likelihood its funds will remain unlisted and will continue to have third-party investors alongside money from the listed entity’s balance sheet.

The corporate structure of this public entity, a limited partnership, is designed to protect many of the benefits the firm enjoyed as a private company.

Blackstone Group Management LLC, which is owned by Schwarzman, Peterson and other senior managing directors, is the general partner of Blackstone Group LP, the public entity. Public shareholders would have limited rights, virtually ensuring that Blackstone itself could never be taken over (see Funds and Firms p13)

What we did not find out was how much of the firm Schwarzman and Peterson own prior to listing, how much their stakes are worth and how much the partners have been paying themselves.

However, it was revealed that Blackstone made a whopping US$1.55bn in carry last year. So although Schwarzman is to be paid a new salary of a mere US$350,000 once the “limited partnership” is set up, the “plus carry” element of this will mean he brings home a considerably higher figure.

The filing also declared that the limited partnership would not provide “earnings guidance” to Wall Street, nor would it produce the dreaded quarterly reports.

In conclusion, nothing much was revealed and the company will be structured in such a way that nothing much will ever be revealed. What has been revealed, though, is this is a tactical move by Schwarzman et al to take advantage of the public markets at a time when it is a bull market for private equity.

Blackstone is good at timing and it would rather use public investors’ money than its partners’ money to pay down its debt, expand and allow some of its partners to cash out.

Sandrine Bradley