Harry Newton's In Search of The Perfect Investment
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.
1, Blackstone's share price since it went public.
Exhibit 2, Blackstone's
Exhibit 3 is
a description of what Blackstone does:
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:
Equity's Ultimate Buyout
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.
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.
$1.3 billion dwarfs Fortress's $620 million stock-market valuation -- with
the stock down 95% since the IPO.
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.
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%.
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.
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
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
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.
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.
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.
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
+ 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!
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
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