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Steer Clear of Blackstone

Cody Willard

The topic is Blackstone Group. I'm just thinking out loud here, and would love a lot of feedback via comments below and emails to me. Here goes:

Blackstone Group files to go public, although nobody knows yet if the IPO will represent shares of the Blackstone Group itself or a Blackstone-managed fund. I think it's brilliant timing. Blackstone is taking something off the table and spreading its risk to the public while the trumpets of private equity are sounding.

What's really mindblowing here is that the public is sucker enough to buy this stock from these guys, who obviously are smarter about when to buy and sell than the public is, given their outsized ownership of capital vs. the average Joe who'll buy their stock. More to the point, how about the fact that bankers are allowing these guys to use OPM (other people's money, including the bank's own money) as leverage to take these companies private though debt?

So let me get this straight: The private-equity guys have been whining to the press and hiring lobbyists to help change their image of being bad for the world. But they're now about to offload their equity onto the public, enriching themselves by using the multiple at which the market will value their earnings and assets to really become richer than most any individual on this planet could ever conceive.

And all the while, they're going to borrow a bunch of other people's money to put to work generating those earnings and assets. Borrow OPM to buy companies even as you sell your own assets to take money off the table.

I wrote the other day that I believe private equity is a sell here. Apparently the guys at Blackstone agree with me. They're selling to the public, right?

When the smartest guys in the room are selling to you, it's probably not the best time to buy. Put it this way: If the Blackstone gang really thought that their equity was a great investment here, do you think they'd want to sell? This isn't a tech company trying to raise assets to grow. These are some whiny rich dudes trying to cash out on the public while the cashing out is good.

The worst part is that they'll still whine about their poor perception among the public when this boom cycle finally reverses and the public realizes it has been had by Wall Street and its cronies again. People can and will explain how this is a great opportunity for the public to participate in private equity and so on, and certainly I do agree that more options for the public and more participation in capital markets is always a good thing -- in the long run. In the intermediate-term, though, I'm not sure this is anything but a bad setup.

Like I said though, selling equity in private equity is a great idea here. If Blackstone's selling, shouldn't you be?