Alvin Toffler wrote a book called Powershift quite some time ago. In it, he had the vision and foresight to guess that the information highway would be built and more importantly that information intelligence would be the most valuable asset in the world. Countries that embraced information technology had the chance to leapfrog straight from the agrarian economy over the industrial economy to the information economy.
Clearly, the information and high technology boom exemplified this. You simply cannot deny the power of the great information companies such as Microsoft, Intel, and now Google.
While Toffler laid most of his weight behind the power of information, I think his more subtle point was that knowledge was the most valuable currency.
What does this have to do with Private Equity?
Well, if you consider the putative public valuation of Blackstone Group, you will clearly see that these days knowledge is more valuable than any hard assset. A $40 billion valuation would give Blackstone a larger valuation than many huge investment banks and multinational corporations. It wouldn't trump Google, but then again, it would be interesting to argue whether the Knowledge at Google is worth more than the Knowledge at Blackstone.
In considering that monster valuation, you must certainly ask this: What exactly does Blackstone have that other people don't?
Well the answer clearly is Knowledge. Knowledge of how to run companies efficiently. Knowledge of how to creatively finance. Knowledge of how to privatize and monetize companies. Knowledge of how to manage hedge funds. Knowledge of all types of private equity. Knowledge of how to create wealth.
It's the best business model out there - valuing and selling a renewable resource that gets replenished with a good night's sleep.
Sure, it takes more than knowledge to run Blackstone. You need connections to powerful people with money. You need connections to key financial players. But more than anything you need to know how the global financial system works.
This just goes to show that financial knowledge is in itself a tremendously valuable technical skill. It's just a matter of putting that knowledge to work. Let's thank Blackstone for showing us not only how to make money using financial knowledge, but how to make money selling that system of wealth creation.
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