Potpourri: Schumpeter & Leon Black's Apollo Group

As expected from the recent quasi-public offering of Blackstone Group shares, its competitors are lining up to cash in on the current premiums for private equity firms.

According to yesterday's Wall Street Journal, the latest private equity shop approaching the market valuation trough is Leon Black's Apollo Group. Apollo has done some indirect public issuances in smaller ways over the last few years, but, now, it is rumored to be unloadi....er....issuing....shares in its main operations.

Allegedly, Leon Black doesn't want to jeopardize his company's valuation by mimicking Blackstone, so he is reported to be leaning to selling unregistered shares to institutional investors. This provides some time for the market to forget about Blackstone before the Apollo Group shares could be registered and traded. Meanwhile, Leon & Co. would be counting the cash from the sale of 10% of their firm.

The land rush is on! Of course, as is typical with financial services trends, need we be reminded by something other than the current sub-prime lending debacle, most trends end in underpriced risk for assets. It's likely that private equity IPOs will be no different.

Come a year or so hence, one of the lower-tiered private equity firms will probably issue public shares and promptly tank, sparking immediate and huffy calls from Congress for "an investigation."

On a more upbeat topic, today's Journal featured an interesting profile of Joseph Schumpeter, one of my personal favorites among economists. Much of my own proprietary work is based upon my readings of, and insights gained from his early work in the 1920s. While the review of Thomas McGraw's book discussed both the professional and personal aspects of his life, I particularly enjoyed the author's focus on Schumpter's beliefs on the ultimate fate of free-market capitalism.

Briefly, Schumpeter felt that, in time, capitalism's superb ability to create societal wealth would be overtaken by its effects on those creatively 'destroyed' in the process. Much like an Ayn Rand novel, he foresaw ungrateful, misunderstanding pseudo-intellectuals, many of whom owe their wealth to his principles, attacking the system for its very successes.

Of equal interest to me was Schumpeter's prescience with respect to monopoly power. He correctly predicted, a la AT&T, Xerox, and Microsoft, that monopoly power did not need to be regulated, because it would tend to die of its own weight, under the attack of new, more technologically-adept competitors. Considering the now laughable concern over Microsoft's browser antics, Schumpeter's clarity of vision on this topic is remarkable.

Even today, a good 80 years after some of his most important work, Schumpeter is still over the heads of most of our politicians, legislators, and regulators.