Media Moves

You don't have to understand the IPO to write about it

March 30, 2007

Posted by Chris Roush

TheDeal.com executive editor Yvette Kantrow writes that a lot of the coverage of the Blackstone Group’s initial public offering fails to understand the concept of private capital.

Kantrow wrote, “The coverage of Blackstone’s IPO plans, first broken by CNBC on Friday, March 16, Money, it's a gasdemonstrates that despite all the attention lavished on private equity by the press these days, the media’s understanding of the field remains limited. For instance, the cockeyed notion that Blackstone would go public mostly to secure ‘permanent capital’ — and free itself from onerous fundraisings — seems to be lodging itself in the media’s collective brain.

“The Wall Street Journal was the first to put this idea out there. ‘By going public, Blackstone would gain a source of permanent capital, since money raised from an open market never has to be returned,’ the paper cooed on Saturday, March 17. ‘Blackstone then wouldn’t need to depend on endless rounds of time-consuming fundraising.’

“The Financial Times, in a winding Comment & Analysis piece last Wednesday, seconded this logic. For Blackstone, ‘a flotation would give it access to capital that, unlike the funds raised from private investors and pension funds, does not need to be returned to the source.’

“Permanent capital? No more fundraising? Not very likely. If a post-IPO Blackstone morphed into a publicly traded investment pool — as these reports imply it would — it would likely fall under the cumbersome regulations of the Investment Advisers Act of 1940, which could, among other things, constrain Blackstone’s ability to pay fees to, or receive fees from, affiliates. This would be problematic for a firm that makes some of its money by taking a cut of the profits made by its funds when they buy and sell companies. The permanent capital argument also seems to erroneously suggest that Blackstone is looking to sell to the public an interest in an investment fund (similar to Kohlberg Kravis Roberts & Co.’s offering in Amsterdam last year) rather than in its management company.”

Read more here.

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