The leveraged buyout boom has ground to a screeching a halt, and credit worries have many hedge fund managers fearing the reaper.

But that hasn't stopped


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from starting coverage of

Blackstone Group

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with a buy rating. Citi co-led the IPO back in June, so anything short of a buy rating would be a real shocker.

In all fairness, Blackstone is considered the crème de la crème of

private-equity shops. But as investors know all too well, that hasn't kept its stock from getting creamed.

The New York-based buyout shop, run by CEO Stephen Schwarzman, priced 113 million shares at $31 each back on June 20. Happy buyers saw the stock soar 13% the next day -- only to be hit by a steady slide in the days and weeks that followed. Even after Wednesday's modest gain, Blackstone's shares are down 38% from their peak and 22% below their IPO price.

Those numbers put Blackstone in some dubious company. John Fitzgibbon, analyst at, says Blackstone was the 16th-worst IPO this year as of Tuesday. (Menlo, Calif.-based medical device company


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is worst, down 43% since pricing at $16.)

So with the financial sector in free fall, is it really a good time to start betting on the still far-from-transparent world of private equity?

Want more? Check out TV video. Mark DeCambre wonders why Wall Street analysts are slapping buy ratings on faltering Blackstone shares.

Prashant Bhatia, analyst at Citi in New York, says yes -- because Blackstone will perform over the long term.

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"Our analysis of Blackstone's

assets under management leads us to conclude that the future performance of existing funds will be excellent," the analyst writes in a Wednesday research report titled "There's a Diamond Inside This Blackstone."

Indeed, Bhatia compares Blackstone's private-equity returns favorably to funds such as

Berkshire Hathaway


, the holding company run by legendary investor Warren Buffett.

"After evaluating 120 public comparable entities vs. Blackstone's private holdings," the report adds, "we estimate that on a combined basis the funds have over $13 billion of gains."

The analyst argues that the private-equity shop's stellar performance -- and its coffers, stacked with $16 billion in ready cash to take advantage of opportunities -- are major buying points for investors.

Blackstone does have its strong points. It has some $88 billion in assets under management. Like

Goldman Sachs

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and similar institutions, it charges steep fees for its advice -- particularly in the lucrative areas of strategic advice and mergers and acquisitions.

The real question, however, is who ultimately benefits even if Blackstone does knock the the cover off the ball. Will the outsized gains that Blackstone has been posting trickle down to investors?

Maybe, but maybe not. The limited partnership structure employed by Blackstone suggests that even as the cash rolls in, Blackstone's executives and direct institutional investor clients will benefit first. The IPO prospectus spells out that shareholders, after all, have few rights and little claim on the direction of Blackstone's strategy.



is a good case study. Its shares have been floundering as well, largely due to all the attention that private equity has drawn on Capitol Hill. Legislators have proposed a series of laws to increase taxes on these firms.

Any taxes are likely to further undercut returns for private equity in the future. But at any rate, insiders are still first in line -- not public shareholders.

With all due respect to Citi, now hardly seems like the time to throw your money in with Schwarzman & Co.