Blackstone shares jump 13% on US debut

Shares in private equity firm Blackstone Group rose 13 per cent in their stock market debut, as investors scrambled for a piece of the sixth richest initial public offering in US history.

Chief executive Stephen Schwarzman now controls a firm whose market value stands at about $US38 billion ($A45 billion). His personal wealth also skyrocketed, with a 24 per cent stake in Blackstone's management partnership worth around $US8 billion ($A9.5 billion), on top of the roughly $US449 million ($A530 million) he was expected to cash out in the IPO.

Exuberance about the booming private equity industry overshadowed mounting criticism of the lavish lifestyles of top executives from politicians, trade unions and the media.

The strength of Blackstone's debut marks a coming of age for the once secretive industry, as it joins Wall Street's publicly traded top tier investment houses.

"This is a new breed of publicly traded financial firm," said Matthew Rhodes-Kropf, a professor of finance at Columbia Business School.

"Once the market demonstrates its appetite for this type of investment, we're going to see all the biggest and the best go public - even after the incredibly negative press it has generated."

For those lucky enough to get in on the IPO - a difficult task since most shares were snapped up by big financial institutions and money managers - the stock barrelled past its $US31 initial price. The shares closed up $US4.06 or 13.1 per cent to $US35.06.

About 113.1 million shares traded hands - almost the full offering of 133.3 million shares. The deal's underwriters did not exercise their option for extra shares, but are expected to do so early next week.

The offering is the biggest US IPO for a private equity firm and the largest overall US IPO in five years. It could open the floodgates for other alternative investment funds to go public, with names like KKR and The Carlyle Group seen as the most likely candidates.

Blackstone's flotation of 12.3 per cent of its management partnership gives investors no real voting rights or direct connection to its $US88 billion ($A104 billion) portfolio of companies and real estate holdings.

Among its investments are Universal Studios Orlando, Madame Tussauds wax museums and the real estate titan Equity Office Properties Trust.

The firm reported a net profit on those holdings of $US2.27 billion ($A2.68 billion) in 2006, largely through what is known as "carried interest".

In essence, this is the money that the management firm earns based on the gains from the investments of its funds, and is generally 20 per cent off the top of the profits from those investments.

Rival buyout shops will likely want to mimic Blackstone's approach, which provided Schwarzman and co-founder Peter G Peterson with a clean way to unwind their stakes.

Unlike most IPOs where money raised boosts working capital to fuel expansion, the proceeds from Blackstone's IPO went mostly to its top executives so they could cash out their holdings.

In fact, the New York-based firm warned in a regulatory filing that it would not turn a profit for years to come because of high compensation expenses for its employees.

That did not stop investors.

"There was heavy demand out there, especially because this came a week early, and it opened pretty much as expected," said Ryan Larson, senior equity trader at Voyageur Asset Management, a subsidiary of RBC Dain Rauscher.

Peterson, 80, took $US1.88 billion ($A2.22 billion) in cash out of the IPO. He will retain a small stake in the company but is expected to retire next year.
Source :http://news.ninemsn.com.au