Blackstone Group IPO to Take Wall Street By Storm

For anyone that hasn't tuned in to CNBC during the past week, today will be the IPO debut of Blackstone Group (BX), one of the most successful private equity investment firms in the history of modern finance. This will be the talk of Wall Street for some time to come, perhaps as celebrated as the Google (GOOG) IPO a few years back (I waited until 290 to get in, but I'm glad I got the upside I did). Unfortunately, it's not a Dutch auction like Google's was.

Anyway, I'm still undecided whether I'll take a shot at any upside today. It's a highly speculative bet to get into after the open. What I can easily predict is that the price will skyrocket immediately above the initial offer price of $31/share. The IPO is overprescribed by 6-7 times at this point, ensuring a deluge of buy orders at the outset. If anything, I may grab a few shares if there's a sustained trend up, based on the technicals. This is a "trade", not an investment though.

Here are some notables on the stock:

Financial Performance: Private-equity portfolio has returned 30.8% annually since its inception in 1987. Its real-estate portfolio has returned 38.2% since 1991. Investments in funds of hedge funds have returned 13%. My take: unparalleled by anything I've ever researched. Sustained returns of 30%+ over a period of decades are completely unheard of.

Henry Waxman embarrassed himself again with a last minute attempt to delay the IPO because of concerns that the Blackstone offering could expose "unsophisticated investors to new risks." My take: Thank you sir, for protecting me from myself.

Dems have also proposed legislation that financial services partnerships such as Blackstone would face a 35% corporate tax rate, compared with its current 15% rate. My take: Although this won't be decided today, if it's starting to look like things are going to go that way, the stock will be slammed. Bush has vowed a veto. Most of the U.S. populous could either care less about what rate private equity firms pay, have never even heard of a private equity firm, don't know the difference between a partnership and a corporation, or want to see the rich guys get socked. I don't think Bush will have much backing, but with his numbers where they are, at this point, he's acting on principle, not political capital.

The only other major private equity firm to go public was Fortress (FIG). Shares jumped 60% on the opening day, but have slumped since. My take: The same could occur with BX, but unlikely to see the same degree due to the overcharged performance compared to FIG. Any predictions of future moves in the price are arbitrary though, as there are no news drivers aside from the tax legislation that would impact the stock.

It's rumored that following all the fanfare surrounding Blackstone, three other big firms may go public as well: KKR, the Carlyle Group and Texas Pacific Group. My take: These firms going public wouldn't impact the BX stock price. They are not direct competition, as they invest in their own individual portfolio of companies, buy them to take them private, then profit massively from the IPO after burdening them with debt. The industries and regions are very diverse. No impact if more firms go public.

Some pundits are scoffing at a "private equity" firm "going public" and what a contradiction that represents. My take: You're not buying the private equity, you're buying a stake in the management and the juiced returns that they routinely deliver. One good analogy from IPOScoop's Fitzgibbon: "The Rockefellers were always known to sell at the top of the market. Are the Blackstone people?" Makes you wonder why they picked now to go public. Personally, I think it's because the founders are reaching the end of their tenure here and want to cash in on their decades of hard work by sharing in the IPO proceeds, of which one of the co-founders is expected to collect $677 million and own a stake worth $7.5 billion, according to a regulatory filing.

My take: Initial spike upwards to something ridiculous, perhaps 50-100% premium, then leveling out. If you want to try and catch some of that upside, enjoy the ride. Come back and post how you did!

I've attached several sources, but I've essentially summarized the news as it currently stands.

Blackstone IPO priced at $31 a share, top end of range

Blackstone IPO shows strong demand

Blackstone IPO: Is the Smart Money Cashing Out?