A Look at Private Equity in Public Hands

Apollo (AINV), BlackRock (BLK), Blackstone (BX), and Fortress (FIG) are commonly thought of as the retail investor’s entry into the big league of private equity and alternative investments. Sorting through these Moon missions, rocks, stones and castles can be quite confusing. None of their publicly traded stocks actually give direct participation in the private equity limited partnerships that these firms are famous for.

AINV is the publicly traded stock for Apollo Investment Corporation, a closed-end fund providing middle market companies with financing. AINV invests in equity, preferred stock, and debt of buyouts sponsored by the major private equity limited partnerships. During its most recent conference call, AINV reported that it is shifting to participation in larger company deals (such as First Data (FDC)). Typical investments are held to maturity, 2 to 5 years.

The famous name buyout sponsors include KKR (KFN), Bain and Carlyle. AINV is managed by Apollo Investment Management LP, which also manages Apollo Management LP. Apollo Management LP is a true limited partnership, completely separate from AINV. Apollo Management LP’s entry into the distressed debt market is not open to AINV investors.

BX is the publicly traded stock for The Blackstone Group, a global alternative asset manager. Assets managed include private equity funds, real estate funds and marketable security funds. BX also provides certain investment banking type advisory services. An investment in BX is an investment in the management company, not in any of partnerships it manages.

BLK is the publicly traded stock for BlackRock, an institutional and retail financial management firm. BLK also provides risk management consulting. BLK is 49% owned by Merrill Lynch (MER), 34% owned by PNC Financial Services Group (PNC), and the remaining 17% is either held by employees or publicly traded. Here again, the public has a piece of the management company, not any of the underlying assets.

FIG is the publicly traded stock for Fortress Investment Group, a global alternative asset manager. FIG manages private equity and hedge funds. FIG also manages two publicly traded real estate and real estate debt funds: Newcastle Investment Corp. (NCT) and Eurocastle Investment Limited (Euronext Amsterdam: ECT and Frankfurt Stock Exchange: EUI1). Just like BX and BLK, FIG investors own only the management company.

This short study enlightened me. Only one of these four stocks is an investment in fund assets, and Apollo can choose which assets are assigned to the public fund AINV versus the private fund.

I have not made any attempt to determine if any of these four stocks are good investments.

No Disclosures.

Comments

[entreq8:]

And that was insightful? This is common knowledge. There are a couple of listed closed ended fund in the mix by groups such as Brevan Howard, Winton Capital, Marshall Wace, etc that give you exposure to actual alternative strategies, but then you are at the whims of supply and demand from Mr. Market, reflecting in premium/discounts to NAV.
Yes there are rectifying mechanisms, but they dont always work.

2008 Jun 05 03:42 PM

[Iceberg:]

This is as enlightening, and as short-sighted, as saying that an investment in TROW is just an investment in the management of T. Rowe Price, not in their mutual funds. Yes, your money isn't going to a sexy private equity fund when you buy BX. But BX is a useful proxy: it will tend to do as well as (or as badly as) Blackstone's earnings which are themselves a function of how well Blackstone's black-art investment vehicles do.

2008 Jun 26 03:00 AM

[flamorte:]

BX and the other stocks listed have a high correlation with the S&P 500 - about 87-90% according to a study I did at the beginning of 2008 - and so do not serve as a private equity asset class when making a diversified portfolio according to an asset allocation plan.

2008 Sep 20 09:11 AM