Blackstone CEO says public markets "over rated"
FRANKFURT (Reuters) - Raising private equity money through the public market is not yet a viable option for buyout firms, Blackstone Group BG.UL Chief Executive Stephen Schwarzman said on Tuesday.
Schwarzman's comments came amid speculation more private equity funds will seek public money after the initial public offering this month of Fortress Investment Group LLC (FIG.N), a private investment fund which raised more than $600 million.
"I think the public markets are over rated," Schwarzman said, speaking on a panel at the annual Super Return private equity conference.
Schwarzman was seated near Todd Fisher of Kohlberg Kravis Roberts & Co. which launched a publicly traded vehicle last year. The IPO of KKR Private Equity Investors LP (KKR.AS), which trades on Euronext ENXT.PA, raised $5 billion, nearly double expectations.
"KKR destroyed the market for anyone else, which I think was their objective," Schwarzman said. But the idea that $5 billion "looms large" was questionable, he added.
Blackstone won shareholder approval this month for the buyout of Equity Office Properties Trust, the largest U.S. office landlord, for $39 billion including debt. KKR and an investor group agreed on Monday to buy Texas Utility TXU Corp. TXU.N for around $44 billion including debt.
'NOT WORTH IT'
Schwarzman said when U.S. private equity firm Apollo Management tried to raise a similar fund it was $1 billion short of its expectation.
"To divert yourself like that and then take on that cost, is really not worth it," Schwarzman said.
But KKR's Fisher said the firm's public fund reflects the maturity of the private equity market, and that other buyout funds will want exposure to the public market.
"We think it's a good thing to be diversified," Fisher said.
Scott Sperling, co-president of Thomas H. Lee Partners, shared Schwarzman's skepticism.
"Once you go into the public market, you no longer have control of who your investors are," Sperling said. "That could be a very dangerous situation if you're a private equity player."
Private equity firms buy and sell companies using money raised from institutional investors such as pension funds and college endowments.
In a briefing with journalists, Schwarzman talked about sizing up massive buyout targets and the difficulties of minority investing.
"We've looked at things in the $50 billion range," Schwarzman said. "We looked at one deal of that size in Germany, but the stock went up too much, so we couldn't do the deal."
He also said Blackstone taking a 4.5 percent stake in Deutsche Telekom (DTEGn.DE) for 2.68 billion euros ($3.3 billion) last year had been an unusual move.
"We've occasionally taken minority stakes," Schwarzman said. "Minority interests are harder to make money on than buyouts. It's not our dream."
The deal surprised because Germany had been hostile toward foreign private equity buyers and because Blackstone's investors expected the firm to take majority control stakes. To read more on this please click on ID:nN27165311.
(Additional reporting by Jonathan Gould and Hans Nagl)
