New York, Blackstone Group LP, the world’s biggest private equity firm, is extending an interesting proposal to retail investors: A piece of the action, just not a seat at the table.
The New York-based buyout shop announced plans this past week to raise $4 billion through an initial public offering. Blackstone, which uses its own investors' money to buy shareholder-owned companies and take them private, could be valued by some $40 billion once it goes public.
The buzz about an IPO has been escalating since word leaked out more than a week ago. But some observers are questioning the deal because it still gives retail investors little say in companies operated by private concern. Blackstone plans to sell shares in its underlying management company, and not the side of the company that runs its investment portfolio. It will offer a limited partnership for investors.
Blackstone plans to sell shares in its underlying management company, and not the side of the company that runs its investment portfolio. It will be structured as a limited partnership where investors pay for a piece of the management company’s profits.
Matthew Rhodes-Kropf, a professor of finance at Columbia University,said, “I think this is a fascinating moment in a maturing industry that’s changing from a mystical back-room club into a big public industry. But, you have to question why they’re using this point and time to go public.”
The IPO now gives retail investors entry into private equity. Buying into Blackstone gives investors a piece of an investment management firm whose portfolio includes everything from Madame Tussaud's wax museums to a massive stake in Germany's Deutsche Telekom.
It also sheds a bit more light on the inner workings of unregulated private investment firms.
Until now, only wealthy investors could afford the opportunity to sink cash into private equity firms. They entrust millions of dollars to the firm’s strategists without being told exactly how their money will be used, or what the returns will be.Through the release of Blackstone’s IPO documents, the world now knows why investors have such faith in Blackstone.
And many investors have much faith in the firm. In less than six years, total assets have risen more than fivefold, from $14 billion to $78 billion.