Technology Investor 

Harry Newton's In Search of The Perfect Investment Technology Investor.

Previous Columns
8:00 AM EST, Friday, January 23, 2009: Nothing more clearly illustrates the notion that "Wall Street -- however you define it -- benefits Wall Street, its management and its owners and not you and me, its customers. Before I run the piece which is from today's Journal, let me set it up with three exhibits.

Exhibit 1, Blackstone's share price since it went public.

Exhibit 2, Blackstone's "earnings."

Exhibit 3 is a description of what Blackstone does:

The Blackstone Group L.P. is a global alternative asset manager and provider of financial advisory services. The Company is an independent alternative asset manager with assets under management of $102.43 billion, as of December 31, 2007. Its alternative asset management businesses include the management of corporate private equity funds, real estate funds, funds of hedge funds, mezzanine funds, senior debt vehicles, hedge funds and closed-end mutual funds. It also provides various financial advisory services, including corporate and mergers and acquisitions advisory, restructuring and reorganization advisory, and fund placement services.

Now to the piece from today's Journal:

Private Equity's Ultimate Buyout

Two years ago the founders of Blackstone, Fortress Investment Group and Apollo Management were the toast of Wall Street. Now investors who bought into their vision know what getting toasted really means: Their shareholdings in the listed vehicles are down between 85% and 95%.

But not everyone is in the dumps. In 2007, the firms' key principals -- comprising just 11 men -- took $6 billion in cash off the table. The combined market value of those three firms today? Roughly $6 billion.

Take Fortress. It came out of nowhere in February 2007 as the first U.S. listing of a private-equity and hedge-fund firm. The firm's five principals -- led by founder Wesley Edens -- cashed out just prior to the IPO, selling 15% of the company to Nomura Securities for $888 million. On top of the Nomura proceeds, the principals received an additional $409.2 million in distributions from the company just before listing.

That roughly $1.3 billion dwarfs Fortress's $620 million stock-market valuation -- with the stock down 95% since the IPO.

Blackstone's June 2007 initial public offering, meanwhile, yielded $2.6 billion in cash proceeds for three individuals. Co-founders Pete Peterson and Stephen Schwarzman banked $1.8 billion and $684 million, respectively, while President Hamilton James received $191 million. The firm's market value stands at about $4.5 billion, down 85% since the IPO.

Finally, Apollo's owners paid themselves a $987 million cash dividend before selling a chunk of their firm in 2007. They sold 17.8% to Calpers and the Abu Dhabi Investment Authority for $1.2 billion in July of that year. Just over $1 billion of that went to the three founders -- Leon Black, Joshua Harris and Marc Rowan. Then the firm listed on a private Goldman Sachs exchange. Investors who bought in are down 86%.

The private-equity chiefs all retained large stakes in their firms -- holdings that have plummeted in value alongside their shareholders'. The day after the IPO, for example, the "Fortress Five," who control 77% of the company, had combined stockholdings of about $10 billion. Today those are worth about $475 million.

The likes of Kohlberg Kravis Roberts missed the IPO window, and the chance to bank some of their gains. Going public likely won't be possible for years, if ever.

But the question now is whether the Fortress founders try taking the firm private again. Given the battered stock price that makes some sense: The shares are hardly attractive as an acquisition currency and the founders haven't enjoyed the public spotlight.

Even if they offered all their wounded shareholders a 100% premium, it would cost about $280 million. That would give them their company back and still leave them with plenty of change in their pockets.

Citibank and Bank of America make me sick. I walk into American Airlines' Admirals Club on the way to Miami yesterday. There sitting on the counter are dozens of free passport leather-like wallets, courtesy Citibank They're using my taxpayer money to give away junk. But, wait, it gets better. I'm leaving my dentist. In 50 feet, there's the most opulent new Bank of America branch I've ever seen -- technology everywhere. Do we need it? Across the road -- no more than 25 feet away -- there's a branch of another bank. Thank you, Bank of America, for wasting my money.

Australian Open Tennis continue. The huge time difference between us and Australia makes this ideal for TiVo. M = Men, W = Women, D = Doubles. All times EST.

To my wonderful dental hygenist, Olga. She came here from the Ukraine for a better life. And she made it. She spoke Russian when she landed. Now she speaks excellent English, except she has problems with puns:

+ The roundest knight at King Arthur's round table was Sir Cumference. He acquired his size from too much pi.

+ She was only a whisky maker, but he loved her still.

+ A rubber band pistol was confiscated from algebra class because it was a weapon of math disruption.

+ No matter how much you push the envelope, it'll still be stationery.

+ A grenade thrown into a kitchen in France would result in 'Linoleum Blownapart.'

+ A hole has been found in the nudist camp wall. The police are looking into it.

+ Atheism is a non-prophet organization.

+ I wondered why the baseball kept getting bigger. Then, it hit me!

+ A chicken crossing the road is poultry in motion.

+ When cannibals ate a missionary, they got a taste of religion.

+ Don't join dangerous cults: Practice safe sects!

I'm in Key Biscayne, Miami for the weekend. It's warm and I've found some beautiful Har-Tru tennis courts.

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.