You may recall the fable of the frog and the scorpion. (see below) It is a story that investors considering an investment in Carlyle Group next week should study well.
Carlyle Group has filed to sell 30,500,000 shares between $23-$25 per share under ticker CG. The offering is expected to be priced next Tuesday May 2. You should avoid this one.
Carlyle is an investment manager like Blackstone (NYSE:BX), Fortress (NYSE:FIG), Apollo (NYSE:APO), KKR (NYSE:KKR), and Oaktree (NYSE:OAK). Blackstone popped on its $31 IPO in 2007 and fell like a rock after that. The shares are currently around $13.
Fortress also did its IPO at $18.50 in 2007 and is currently around $3.60. Oaktree did an IPO at $43 two weeks ago. It never traded at that price and is now around $39.
In the story, the scorpion wants to cross the river but cannot swim. He asks the frog to carry him across. The frog states that the scorpion would sting him. The scorpion says that would be a bad idea because the frog would die and the scorpion would drown. Halfway across the river the frog feels the fatal sting. He asks the scorpion why. The scorpion says "it's just my nature."
It is the nature of private equity managers to be greedy. Nothing against that. I just don't want their greed to be at my expense. Based on the history of previous private equity management company IPOs, the public investors are likely to be losers.
Carlyle has a book value of $.30 per share. The new investors are being asked to pay $23-$25 per share. The yield will be nice. Don't be tempted. It is the scorpion talking. Hop in the water and swim away by yourself.
If you want some action in this area, better to buy Blackstone around $13. Better yet, sell Blackstone puts, collect some premium or get put into the stock cheaper. If you don't get the stock put to you the cumbersome K-1 form will be avoided.