Blackstone filed its S-1 for an IPO today. I know there has been a lot of news about the IPO, so I'll dissect a little bit of it and provide some discussion. This one is a filing that will go down in the record books. If you thought Fortress was a gold mine, then you'll easily see that Blackstone is indeed the mothership of Private Equity. Although exact numbers are not provided, the rumor is that 10% of the company is being sold for $4 billion, placing a nice $40 billion valuation on the company.
Principal Shareholders & Leadership: Stephen Schwarzman, Peter Peterson, Tony James, J. Tomlinson Hill, Michael Puglisi. Interestingly, these are the only people listed as more than 5% shareholders. Their exact stakes are not identified. Schwarzman was an MD at Lehman Brothers and Peterson was the CEO. James previously founded DLJ Merchant Banking and came from CSFB/DLJ. Hill is from CSFB and was co-CEO and co-COO of Lehman Brothers. Puglisi is from Andersen.
Company Story: Started in 1985 by Schwarzmann and Peterson from scratch. Now boasts $78.7 billion under management. Assets under management have grown nearly 40% per year. Four main business lines with their IRRs since inception:
1. Corporate Private Equity - IRR 30%
2. Real Estate - IRR 38%
3. Marketable Alternative Asset Management - Funds of Hedge Funds IRR 13%, Proprietary Hedge Funds 11.6%, Mezzanine IRR 16%, Debt, Closed End Mutual Funds (India IRR 43%), (Asia 42.5%)
4. Financial Advisory - M & A, Restructuring/Reorganization, Fund Placement
These are impressive IRRs for all funds since inception. If you look at the IRRs since 2002, you see that they are much higher. If you look at all of their business lines you will see that they are well diversified almost like an investment bank. They even have a fund placement arm that has placed a significant amount for other fund managers. It is rare to see a buyout shop raising funds for other people.
It is also interesting to note that the highest returns actually come from two of its closed end mutual funds which are investments that are accessible to the general public.
Financials: Expanding revenues of 500 mm in 2005 and 1.1 billion in 2006. Expanding investment income of 8.1 billion in 2006, 5.2 billion in 2005. Net income of $2.2 billion in 2006 and $1.3 billion in 2005.
Structure: Units in a Limited Partnership are being sold to the public. The LP will be controlled by a General Partnership controlled by Blackstone managers. A portion of the proceeds will be used to buy stakes from managers. Another portion to be used to invest in funds that have no finite lives such as Blackstone's hedge funds and debt funds, but nothing will go toward buyout funds. It seems that the funds will be primarily used to help managers cash out as well as invest in the business of Blackstone, rather than the funds. This is a different strategy and actually in my opinion is a more appropriate use of the funds. Investors will actually get to participate in ownership of the manager rather than just be an investor in Blackstone's funds.
Another interesting thing is that Blackstone clearly says in their prospectus that it is not being hypocritical by going public when it is in the business of taking companies private. They will not bow down to the pressures of being public and provide any financial guidance for quarterly or annual operating results. They will not let short-term pressures affect their investment decisions.
I could probably go on and on about the filing, but I'll leave it to the financial press to dissect it ruthlessly. It will be interesting to see what the final filing reveals.
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