Blackstone struggles to deliver case for listing

By Francesco Guerrera, Ben White and James Politi in New York, Financial Times
Published: Mar 17, 2007

When Rod Stewart launched into Tonight's the Night at Steve Schwarzman's 60th birthday bash last month, it must be assumed he was not referring to a stock market listing for Blackstone, the private equity group Mr Schwarzman runs.

With hindsight, though, that lavish $3m New York party - featuring the comedian Martin Short and dancers from A Chorus Line - was the night the secretive buy-out fund became public property.

By stepping into such a bright limelight the multi-billionaire Mr Schwarzman was defying criticisms that private equity's new rich were flaunting their wealth and emphasising the industry's role as powerful new force in global capitalism.

Blackstone's plans to become the first large US buy-out group to list on the stock market, revealed yesterday, will test that assertion and open the tightly-knit private equity industry to an unprecedented level of scrutiny and public debate.

Buy-out groups' recent frenzied takeover activity and record fundraisings have brought a hostile response in Europe, where politicians and union leaders have attacked private equity's aggressive style and accused it of stripping entire sectors bare. In the US, the industry has gone on the offensive, setting up a trade group run by a veteran Washington lobbyst to nip in the bud any backlash.

But the listing of Blackstone would offer critics the easily accessible route of a traded stock to mount their attacks. As one opponent of private equity said yesterday: "It's one thing to throw a massive party when you are the owner and boss of the company, it is another thing once you have to answer to shareholders."

Financial investors, however, are likely to focus on the timing of Blackstone's decision to list, especially if other funds such as Kohlberg Kravis Roberts and Carlyle follow suit.

Many will wonder whether, with stock markets becoming choppy, the planned listings mark the peak of the private equity boom - akin to the slowdown in investment banking activity that followed Goldman Sachs' 1999 initial public offering. Blackstone is likely to rebuff such arguments, invoking a rationale used by Fortress Investment Group, the hedge fund and private equity manager that staged a highly successful IPO last month.

Fortress said the listing would enable it to create a stable institution that would continue when founders retired, provide permanent capital to build new businesses and shares to use as currency for acquisitions and to attract and retain talent.

Reasons not likely to be included in Blackstone's prospectus include the desire of ageing principals to realise the value of the business they created, rather than retire and leave it to junior partners. The Fortress IPO turned its founders into instant billionaires and the Blackstone offer would push Mr Schwarzman and co-founder Peter Peterson further up the world's rich list.

But the biggest charge against Blackstone and other would-be listed buy-out groups could be one of double standards: throughout the recent takeover spree, buy-out executives have mantained listed companies should go private to escape costly stock market regulation and the short-term demands of investors.