In theory, private equity is a simple business. Basically, it's about buying a company at a cheap price and then eventually selling it for a premium. Oh, and because of the large amount of debt, you can essentially leverage the returns.
However, this raises an interesting question: If Blackstone wants to buy from you or sell an asset to you, should you be concerned? Does the firm know something that you don't?
It's a good question to ask. After all, about a year ago, Blackstone went public with much fanfare. Interestingly enough, it marked the peak of the private equity market. Yet, Blackstone was able to snag a cool $4.1 in the offering. Even the Chinese government invested $3 billion in the firm.
Well, Bloomberg.com has a good piece on the topic.
First of all, Blackstone's stock is down more than 40% since its IPO, and things aren't looking so good (at least in the short-run).
Actually, if you took the time to read Blackstone's IPO documents, there were certainly many warnings about the business. Some of issues included volatile earnings, credit availability, the difficulties in managing deals, potential tax problems, and so on.
But who reads such things?
It looks like investors are still not reading much on Blackstone, though. If anything, there has been mostly avoidance.
So, isn't this the time to consider an investment? Perhaps so. It's hard to believe that private equity will fade away. Simply put, it's been a key part of the financial system since the 1970s.
With valuations low, this is definitely a good time for Blackstone to buy up companies, which is easier because of the firm's war chest. For example, the firm was able to snag GSO Capital Partners LP (a major player in the distressed debt market).
Moreover, Blackstone has a diverse platform, which includes investments in real estate, hedge funds and, of course, private equity. There has also been a move into emerging markets.
Keep in mind that Blackstone partners and employees own 80% of the firm -- and that there is a lock-up on many of the shares until 2016. In other words, they stand to get even richer if they continue to make the right investments.
Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.