The author of the world’s absolutely, positively greatest private equity blog, Going Private, has discovered that a lot of people in the “McMedia” (that is, not just me) thought there was something ironic about Stephen Schwarzman, longtime critic of public equity markets, deciding to take Blackstone Group public. Here’s her contrary take:
If we view, as I believe we should, the boom in private equity markets as a mandate on the suitability of public markets for fostering long-term growth, and, in particular, their myopic, short-term focus on quarterly earnings, the regulatory burdens of the beloved section 404 and the inability of the investing public to sufficiently reward rational risk taking by management teams of publicly held firms, then using Blackstone as a conduit, a proxy if you will, for public capital markets inflows without imposing the value destroying constructs of the public markets on Blackstone’s daughter firms, then there doesn’t seem much ironic at all about Blackstone’s decision. Quite the reverse, dear reader.
It’s an interesting argument, and there’s surely truth in the notion that private equity’s rise has a lot to do with public markets’ flaws. But Blackstone isn’t going public primarily in order to “serve as a conduit … for public capital markets inflows.” Yes some of the money raised by the IPO will be invested in private equity deals, and some will, according to the preliminary prospectus, “facilitate our expansion into new businesses.” But while the actual breakdown hasn’t been made public yet, I’m guessing the bulk of the IPO proceeds will go straight into the pockets of Blackstone’s current owners, its partners. Even if you don’t subscribe to the cynical view that Blackstone’s partners are simply selling at a market top, it seems apparent (in fact, it more or less says so in the prospectus) that the main reason the firm is going public is to make its partners investment in the firm more liquid–so they can diversify their holdings, and so they can get out without too much hassle when the time comes to quit. Public equity markets are great that way: You can buy and sell your shares most anytime you want. And when a private equity firm run by a man who has gone out of his way to bash public markets decides to take advantage of that wonderful property, well, that’s kinda ironic.