The Blackstone IPO 1. If you were
The Blackstone IPO 1. If you were a fund LP how would you view the structure Blackstone has put in place to go public? IPO offered Blackstone certain advantages: – Access to the capital markets, as a new source of funds. – Blackstone could also use its own stock for the acquisitions.
– It changed compensation structure and provided more incentives to junior management and help to keep top employees motivated long-term. Blackstone decided to adopt the MLP structure which allowed to establish a governance structure that would require minimum structure to the existing structure.As a limited partner I would look negatively at the idea of Blackstone to go public due to the following reasons: – In case Blackstone ever comes under the market pressure it might push them to increase the fees to support returns, especially in the light of the guaranteed dividends.
– Availability of the capital and stock for making deals makes them less interested in the funds and LPs lose control they had before over funds and terms funds operate. – Increased costs due to the extensive reporting requirements which again might force the company to increase fees. Market pressure and expectations might force Blackstone to take different than before approach to risk assessment.
– Interests of Blackstone and LPs might not be aligned if Blackstone goes public. 2. As a potential employee how would you view the Blackstone compensation structure against a similar offer from a private equity firm that was not public? As an employee I prefer an option that does not link me long term to a firm.
If in a partnership the structure of my remuneration is salary and a carried interest has a shorter period of time then I prefer this structure.I assume that vesting period of shares takes longer period than it is required to receive a carry (my share in it); this will link me longer term to the firm. I want to be able to be mobile and change the company if better opportunity comes up without losing my achieved remuneration. Another concern is that how my stock remuneration is valued, is it at the current market price. In any case it brings my funds to a certain uncertainty subject to the future market quotes and market volatility. 3. Would you rather be an LP in a Blackstone Fund or a public unit-holder?In this case there is an argument to stop investing and just buy shares which will retain the exposure without paying management fees.
However, there are certain concerns for the shareholder option: – investors base their decision to buy shares on the past performance which does not guarantee that future performance will be as good, – investors lose their saying in how the company runs its funds, as in the MLP structure shareholders have only limited voting right and can not elect general partners or directors. based on the valuation, investors might pay a big premium, – investors are not buying the funds, they are buying the company that manages the funds. – Volatility of the market I would still prefer to be a LP rather than a unit-holder. As an LP I worry about the performance of the fund I invest in and stay outside the risk of poor performance of the other business segments. I also will be secured from the external factors that impact the market price of shares.