Last month, Stephen Schwarzman's Blackstone fund announced that its fourth-quarter earnings for 2007 had plunged a precipitous 89%. What was particularly galling was that this occurred in the same year that the fund released its IPO, for which it received top dollar. Of course, by the time this was announced, Schwarzman had already collected a $5.1 billion paycheck for 2007.

There has been some talk about how Blackstone's declining profits had led to a comparable decline in Schwarzman's fortunes. However, given his considerable 2007 salary, it doesn't seem like he's hurting all that much. In fact, he recently donated $100 million to the New York Public Library; while this is a very impressive gift, it comes with an equally impressive price: the main library building at 42nd Street and Fifth Avenue will now be named the Stephen Schwarzman Building. In return for his munificence, Schwarzman's name will be carved in five separate places on the white marble edifice: thrice on the front of the building and twice on the 42nd Street side. While this will, no doubt, be far more attractive than a graffiti "tag," one cannot escape the feeling that the concept is the same.

One Blackstone investor has recently sued the fund, claiming that, in its IPO documents, it failed to disclose key information about the unimpressive performance of some of its companies. Had this information been made available to investors, they presumably would have had lower expectations for Blackstone and would have paid considerably less for shares in it. In addition to being unethical, the suit avers that this is a violation of federal securities laws.

While the over-hyped Blackstone Group (NYSE: BX) IPO has proved to be mostly lackluster, it still looks like KKR is gunning for an IPO (hey, Blackstone's valuation is still at nosebleed levels).

According to a report in TheDeal.com [a paid service], KKR has initiated the process of becoming a broker dealer. This means the firm will be able to buy and sell securities (and generate commissions on the transactions).

Keep in mind that Blackstone has had this license for a long time because of its advisory business.

But, the license allows for other lucrative businesses, such as IPOs (where the fees have remained juicy). No doubt, it's been good to such financial powerhouses like Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS).

So, at the end of the day, we may actually see KKR and Blackstone become like the other diversified financial players. And, at the same time, the traditional financial firms will try to look more like Blackstone and KKR.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

With the IPO of Blackstone (NYSE: BX), there's been lots of talk about the eye-popping compensation of some of its key principals. In fact, Congress is thinking of imposing higher taxes on the private equity industry.

To get some perspective on things, I interviewed John Ryan, who is the president of RSMR Global Resources (which is a retained executive search firm). He has extensive experience with banks, financial institutions and private equity (PE) funds.

What's your take on the Blackstone compensation? Normal for private equity?

From what I have seen, Blackstone's compensation has been in line with other major city private equity firms.

In this week's Barron's [a paid service], there's an in-depth look at the mega IPO of the Blackstone Group (NYSE: BX). It's the most important IPO since the offering of Google (NASDAQ: GOOG), although investors shouldn't expect the same kind of returns.

While Google signaled a burst of growth in online advertising (which appears to be long-term), it looks like Blackstone is really signaling a top in the private equity space. Why?

Here are some bullet points:

Competition: KKR, Goldman Sachs (NYSE: GS), TPG, Apollo Management and others all have big war chests and are competing for deals. This drives up valuations -- making it more difficult to get strong returns. This is essentially what happened with venture capital during the internet boom.

Institutional Pushback: Institutions and hedge funds are pushing for higher prices on buyouts. An example is the Clear Channel (NYSE: CCU) deal.

Higher Interest Rates: Private equity has been blessed with dirt-cheap interest rates and this makes it easier to generate returns. But with interest rates climbing, things are getting more difficult.

Politics: Capitol Hill needs more tax revenues. So why not raise rates on private equity?

Yes, Blackstone has posted a stunning 22.6% average annual rate of return (adjusted for fees) since 1987. But, with all these ominous trends, will Blackstone continue the pace? And, is it worth paying 2 times the multiples of companies like Goldman Sachs and Morgan Stanley (NYSE: MS)?

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

In its much-watched New York Stock Exchange debut Friday, private equity firm The Blackstone Group LP (NYSE: BX) closed at $35.06 on volume of 113.1 million shares, up 13.10% from its initial-public-offering price of $31. Blackstone's shares did however finish $1.39 lower than Friday's opening price of $36.45 after spending most of Friday's session stalled between $35 and $36.

Blackstone raised $4.13 billion Thursday in its 133.4-million-share IPO, the largest in the U.S. since CIT Group Inc. (NYSE: CIT)'s $4.6 billion IPO in 2002. The shares outstanding represent a 12.3 percent stake in the buyout firm; Friday's $4.06-per-share gains bring Blackstone's capitalized value from $33.5 billion to just under $38 billion -- not too shabby.

More Blackstone coverage on BloggingStocks

• Tom Taulli: Blackstone sixth among IPOs
• Tom Taulli: Expert on Blackstone IPO
• Peter Cohan: Napoleon-watch: Blackstone's disappointing debut
• Joseph Lazzaro: Is the Blackstone IPO right for you?
• Sarah Gilbert: Blackstone Group IPO: Do you want in?
• Peter Cohan: Blackstone IPO not a great deal for bankers or public
• Georges Yared: Blackstone Group: Going public because it can
• Tom Taulli: Blackstone IPO: Looking for the greater fool

Blackstone Group LP (NYSE: BX) IPO. The stock is up about 15% even though the Dow is down 116 points. There are also serious concerns about some ailing hedge funds from Bear Stearns (NYSE: BSC).

I had a chance to interview Steven Howard, who is an attorney at Thacher Proffitt & Wood and an expert on private equity. His thoughts on the Blackstone IPO?

"It's of course difficult to predict the length of business cycles for sectors of the economy, but most commentators agree that the business cycle for private equity is mature, and that Blackstone is cashing out at the top. I believe that the top has not yet been reached, that Congress will not legislate any curtailments to the private equity/hedge fund business until at earliest the first quarter of 2008, so there is plenty of time for others in the IPO pipeline, like KKR, Apollo and others to explore the top. Nevertheless, Blackstone's IPO is very lucrative to Pete Peterson and Steve Schwarzman, and their senior managers. Just as Blackstone has wisely accelerated their IPO, so will the next group of IPO registrants in the rush to the market in the hope that they may get some 'grandfathering' benefits from any legislation, if in fact it is enacted in 2008.

"These private equity funds are notoriously difficult to value because of the nature of their investments which are illiquid and often require a sale to a third party before the private equity fund realizes any gains or losses from the investment. As a consequence of the difficulty to value the underlying investments, Blackstone may trade at a discount to its NAV (net asset value) over time, as closed-end funds typically trade at a discount to NAV in the aftermarket following their IPOs.

"Interestingly, investors in Blackstone will not be entitled to vote on who the managers of the Fund will be. Because the Fund is structured as a partnership, there is no equivalent of a Board of Directors. Peterson and Schwartzman will run the Fund until Peterson retires in December 2008 when Schwartzman will run it solo. Blackstone says in its Registration Statement that it did not want to change in any way its management since it's been so successful, so no shareholders' meetings ever, very limited corporate governance by public company standards and very little protection from conflicts of interest.

"A final note, it is a major mistake for anyone to underestimate the strength of the private equity/hedge fund lobbyists in Washington, DC, especially with a presidential election year in the very near future in which it is likely that THREE candidates will be from NYC (Clinton, Giuliani and Bloomberg), the home for many private equity and hedge funds, including, of course, Blackstone."

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

As I posted earlier this month, Blackstone Group's CEO Stephen Schwarzman gave an interview to the Wall Street Journal with a compelling theme -- Schwarzman is the Napoleon of private equity. Napoleon-watch tracks his moves on the business battleground.

As Sarah Gilbert posted this evening, Blackstone priced its IPO at the top of the range, $31 a unit. It's worth emphasizing that people who buy these units will not be getting shares of stock -- not at all. Instead they'll receive master limited partnership units.

And as I discussed this afternoon on CNBC with Maria Bartiromo, the value of these units is likely to skyrocket tomorrow when they begin trading on the New York Stock Exchange. The reason is that the offering is seven times oversubscribed -- that means that orders for Blackstone's units exceed supply by a factor of seven!

I will go out on a limb here and predict that these Blackstone units will end the day at $90 a unit. This will leave Steven Schwarzman in the enviable position of having a net worth of roughly $23 billion. Not bad for a day's work. No wonder KKR wants to do an IPO.

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.

In the world of individual investors, "Blackstone IPO" is a phrase that ranks right up there with "Amanda Beard photos" in overall sexiness and mystery. Will it be everything that we hope? we wonder, and the fact is, it probably won't. The IPO is due to price today after the market closes, and will start trading tomorrow under the symbol "BX" on the NYSE.

The thing that is problematic, as Peter Cohan has pointed out, is that the term "monetization" weighs heavier (and, for us, far, far less sexy) on the company's prospects than anything. The fact is: the firm isn't forecasted to make a profit for years so it can pay off its partners, for instance, chief despot and CEO Steve Schwarzman. Not just that, but individual investors will be subject to a variety of strange tax impacts, including the rather less-than-detailed reporting the company plans to issue and the possibility that legislation might create adverse tax consequences for the little guy.

It's funny, too, that Schwarzman called the public markets overrated, and mentioned that rival Kohlberg Kravis Roberts had "destroyed the market" for anyone else. I guess, in a few moments, we'll see. The IPO priced at $31 per share, the top end of the range expected and setting Blackstone's valuation at $33.6 billion.

Over the past week, it looked like there was trouble brewing for the upcoming IPO of Blackstone. After all, the Senate has been preparing legislation to tax publicly traded partnerships.

Then again, the tax will not take affect until five years. And, in the IPO world, that's is an eternity.

Well, it now looks like the Blackstone IPO is on the fast track and is slated to be priced on Thursday. This likely means the firm's shares will start trading on Friday.

Hey, maybe the fact that Congress is concerned is a telltale sign that Blackstone is a powerhouse, right?

It does look that way. So, expect lots of fireworks at the end of the week.

The proposed ticker for Blackstone is "BX."

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Investors who worry about tax increases, socialized medicine and Hillary Clinton picking out fabric swatches, should be petrified by the recent polling data showing how low President Bush's popularity has sunk.

A recent NBC/Wall Street Journal poll showed that by a margin of 52% to 31%, Americans want the Democrats to win the presidency next year. Politico.com is reporting that "Republicans across the country are warning that increasing public discontent toward President Bush, the Iraq war and the GOP brand in general threatens to send the party's 2008 campaign planning into a tailspin."

Even though the economy is fairly strong and the stock market continues to set record after record, Wall Street seems out of step with Main Street. People are fed up with high gas prices, the war in Iraq and the bursting of the real estate bubble.

They also don't like corporate fat cats either, so Blackstone Group LP CEO Steve Schwarzman, who stands to earn as much as $677 million from the private equity firm's upcoming IPO, might want to watch how he spends his money before the election. For instance, he should avoid lighting cigars with $100 bills.

Members of Congress are already grousing about the favorable tax treatment that hedge funds and private equity companies enjoy, which was underscored by the Blackstone IPO. There will be more and more complaining about private equity and hedge funds over the next few months.

In fact, there will be such noise about issues of interest to investors ranging from taxes to free trade that it will be difficult to figure out what to believe.

About the only thing that's for certain is that big changes are coming.

The prospectus for the Blackstone Group IPO is certainly massive. Then again, the deal involves some complex legal matters.

I had a chance to talk to Bob Kennedy, who is a partner at Jones Day. He works in the company's private equity group.

According to him: Blackstone's corporate structure for the IPO is the basic structure Fortress Investment Group (NYSE:FIG) is using as well. It makes sense because the economics of the fund manager (which is basically the entity that is going public) involve receiving distributions from the operations of the funds it manages, then distributing those payments on to the owners. It would be tax-inefficient to have a corporation receive and make these distributions, so instead it's set up as a limited partnership, offering limited partnership units.

Another interesting thing I saw was the "priority return" that the new holders will receive relative to the existing owners' retained interest. It's described on page 16 of the prospectus: "Accordingly, until December 31, 2009, our existing owners will not receive distributions in respect of their Blackstone Holdings partnership units unless and until our common unitholders receive aggregate distributions of $___ per common unit on an annualized basis." The amount remains to be filled in but I think this is an unusual feature designed to make the offering more attractive.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Even though private equity firms have been around since the 1970s, there haven't been any IPOs of these outfits -- at least not until recently. In fact, back in the late 1980s, private equity was red hot . Yet, there were still no IPOs.

But, the recent IPO of Fortress Group (NYSE:FIG) has changed everything. There is no doubt that the public markets have a big appetite for these kinds of issues. The big question: Is this really a sign of selling at the top?

That's the tone in a front page article in yesterday's Wall Street Journal regarding the anticipated IPO of Blackstone [the WSJ is a paid service]. Keep in mind that the most successful private equity operators have a pretty good sense for timing. That's why they make the big bucks. Then again, there is still lots of momentum in private equity -- and tons of money coming into funds. This should continue to for awhile.

The interesting thing is that a credit crunch would be a good thing for a Blackstone IPO. It will have billions of its own capital to finance its deals -- and could even use its stock. This would certainly give the firm a big competitive advantage.

So, it's no wonder that Blackstone is spending 24/7 to get this deal done.

Updates on the Blackstone IPO:

• March 22, 2007: Blackstone files for IPO
• March 22, 2007: But CEO called public markets 'overrated'?
• May 16, 2007: AFL-CIO objects to Blackstone IPO
• June 13, 2007: Should you invest in Blackstone IPO?
• June 19, 2007: Blackstone IPO prices Thursday, June 20; offered to public Friday, June 21
  
• June 21, 2007: Blackstone IPO no good for private investors
• June 21, 2007: Blackstone IPO priced at $31/share, sets BX value at $33.6 billion
• June 22, 2007: Blackstone opens 18% higher in NYSE debut
  

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.