• Fear of private equity regulation. Given the many statements that Blackstone CEO Stephen Schwarzman has made about the negatives of public ownership, a Blackstone IPO is a bit ironic. Why would Schwarzman risk public chiding for switching his views on public ownership as it applies to Blackstone? Tax avoidance. As Dealbreaker suggested, Blackstone may view an IPO as a way of getting around a proposed change in the tax treatment -- from capital gains to ordinary income -- of private equity general partners' 20% share of investment profits. This could make a big difference to partners like Schwarzman -- instead of paying a 15% tax rate, they'd pay 35% which would could cost an extra $200 million in taxes on, say, a $1 billion chunk of investment profits. A Blackstone IPO might save Schwarzman and his partners from writing such a check to the U.S. Treasury.
• Fear of liquidity reversal. Just as the subprime mortgage market is suddenly reversing and becoming much less liquid I think Blackstone sees the same thing happening in private equity. There is a record $480 billion in private equity borrowing out there and Moody's (NYSE:MCO) expects the default rate to increase to 3.07% in 2007. Blackstone may be eager to get an offering out there before the window shuts.
• Junior partners ready to bolt if they don't get liquidity. While Schwarzman has plenty of money, some of the junior partners at Blackstone don't have that scale of liquidity although they suspect that if they could cash out their equity, it would be worth a lot. Some are thinking that maybe they could get more money faster if they split. So Schwarzman may feel that an IPO will let Blackstone hold on to these folks. However, as the New York Times [registration required] suggests, an IPO may make it more difficult to recruit future partners.
• Fortress envy. After reading some of Schwarzman's comments about KKR's and Fortress Investment Group's (NYSE:FIG) IPOs, I got the feeling that he envied their successful offerings and now sees a need to emulate what they've done. This just goes to show you that it's not how much you make, it's how much more your competitors make that motivates Schwarzman and his partners.

A part of me thinks that this could also signal a private equity market top. With investors already nervous about subprime's economic impact, it would not take much to scare investors away from private equity. And if the future opportunities were so great, why would Schwarzman -- who's known for good investment timing -- want to sell out now?

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Fortress, Goldman Sachs, or Moody's.