Steve Schwarzman has come in for a lot of stick lately.
Some of his private equity peers blame him for jeopardizing their advantaged tax status with conspicuous consumption and the aggressive structural features of Blackstone’s recent initial public offering (IPO).
And investors in the offering are certainly feeling pain too, with the shares off about 20% in little more than two months.
But the Blackstone founder has certainly done something right. He took the firm public just before a sharp turn in the credit markets which has, in effect, halted the leveraged buyout industry.
With that bit of fancy timing, he’s single-handedly trumped competitors such as Carlyle and Kohlberg Kravis Roberts, who may have to shelve their own IPO plans in a very unpromising equity market.
This certainly makes Blackstone’s managers look more on the ball than peers. But, to date, Schwarzman and his minions have been the only ones to benefit.
He cashed in about $675 million (Rs2,781 crore) worth of shares in the IPO, a stake that would now be worth about $130m less.
Meanwhile, the Chinese investment group that bought nearly a 10% interest in the private equity firm is reeling from a huge loss.
Over time, however, Blackstone will probably be at an advantage if its competitors don’t manage to get out into the public market.
That is not to say things will be easy in the short term. With debt markets less compliant, tougher times loom for the buyout industry even if markets stabilize.
And there are still lingering issues from its IPO, such as an increase to private equity taxes and rising compensation costs.
Despite investors’ inability to dictate anything to Blackstone’s bosses, given their lack of a shareholder vote, that could give Blackstone some uncomfortable moments.
But crucially, Schwarzman et al, unlike their competitors, now have a currency to help them grow the private equity firm, both in its core business and beyond.
Its premium stock price—it still fetches a richer multiple of earnings than financial groups such as Goldman Sachs—will certainly be a plus.
Blackstone’s shareholders could soon start clamouring for Schwarzman to take advantage of that. With the buyout industry facing headwinds, it could be the only way they will see a profit on their investment any time soon.