The Blackstone IPO : Part 1 of 3

The Blackstone IPO that was announced last week has certainly created a wealth of topics on which to comment. There are probably at least three posts in this announcement.

First, there are the questions of motivation and valuation. Second, that of philosophy of the private equity management style. Third, the ramifications of this IPO for the future of buyouts and the now-about-to-be-public private equity firms.

For starters, Steve Schwarzman's decision to reverse course on Blackstone's organizational form is clearly linked to the firm's apparent ability to cash in on its imputed value. The numbers being tossed about value Schwarzman's stake in the neighborhood of at least $800MM.

The weekend Wall Street Journal piece rather caustically contrasted Schwarzman's extolling of the benefits of private equity with the world into which he is about to plunge Blackstone.

The truth is, though, that such amazement is appropriate. I'm not against greed or opportunism. But I don't like inconsistency. Especially not in personal principles.

To me, Schwarzman's entire raison d'etre is now suspect. The party line on why private equity is good for managers, companies, the economy, etc., is now a sham. The 'magic dust' that firms like Blackstone sprinkle on otherwise-normal firms is about to become suspect.

The greed Schwarzman has now displayed will pass, I think, without criticism from the business community, because that community understands power and taking advantage of it when you have the opportunity.

However, that done, what is Blackstone? Isn't it, in aggregate, as messy and undirected as, say, that other financial mess, Citigroup? Or Chase? Only worse

It has trading, asset management, M&A advisory- all the cream financial service businesses- plus a slew of operating companies.

Whatever mythical valuation all of this has when private should, one can be forgiven for supposing, that valuation should shrink as soon as the lot is merely part of a publicly-held, routinely-reporting entity.

It would seem to be the business equivalent of the physics debate about the nature of light- wave, or photon? Blackstone cannot be both preferentially-valued private takeover, rehab and financial services shop, and a public entity as well.

To preserve access in this very small world, it's even possible that media personnel and analysts alike will give Schwarzman and Blackstone a pass for a few months, to a year, before the private equity 'magic dust' begins to evaporate.

I think it's highly likely that Schwarzman sees the rising tide of combative public boards, and takeover prices rising, returns falling, and the eventual compression of his overall business returns.

What better time to move, and cash in, than before the other side becomes fully aware of this sea change?

On one hand, Schwarzman is striking opportunistically and 'fairly,' but, in the same moment, he is transmuting that which he is selling, for a higher value, into something generally conceded to be worth much less and, usually, nightmarish to operate for consistently superior returns.