Trader’s Narrative

Any one else find it ironic that a private equity firm is going public?

No? Well, it must just be me.

Late yesterday the upcoming IPO of Blackstone Group (BX) was priced at the higher range: $31. Trading will start sometime today in New York.

One of the concerns is that as a public company they will not get preferential tax treatment (15%) but instead be taxed at 35%. That can’t be good for earnings, nor for valuations.

But the Chinese don’t seem to mind. They’ve sunk a few billion into this firm. Of course for the Chinese government a $3 B investment is chump change. The sort of money most people would find under their couch cushions.

But remember, the Chinese bought before the IPO (and they’ve already made money since BX is valued at $34 billion now). I’m not sure you want to buy what these guys are selling. After all, their bread and butter is taking companies public when the ducks are quacking. Are you sure you want to sit on the other side of the table? And play the part of ducks?

Take a look at Fortress Investment Group (FIG). Since its IPO its floundered. Sure it was horrible timing going public just before a market rout, but while the market recovered and then some… FIG just flops around:

I’m not saying that these firms are bad investments. On the contrary, they create a lot of value. But buying here and now at these prices? I’m not sure that’s wise.

Of course, the two giants (Carlyle and KKR) in the sector still haven’t moved for an IPO - although there are some rumous. When and if they go public then we’ll have a perfect storm of a signal.