Is the term "private equity" headed for extinction? Last week, Blackstone Group, the largest private-equity firm, disclosed that it was at least considering an initial public offering.
A few days later, there are still more questions than answers about the possible IPO. For instance, the world of private equity always has involved the privacy its name implies. Whereas public companies are forced to disclose a progressively larger array of their financial and operating particulars, private-equity firms have been able to operate under a relative veil of darkness as they minister to the companies included in their portfolios, shoring them up before taking them public again.
A key question involves how Blackstone -- and almost certainly others behind it, assuming it successfully executes an IPO -- will structurally address the seemingly inherent contradictions in its new form. The Wall Street Journal has suggested that Blackstone could be structured like a master limited partnership or a real estate investment trust, in which private equity would administer the firm's funds for its public investors. But it seems to me that such an approach might constitute a red flag for both regulators and a Congress progressively more interested in public companies' transparency.
In another proffered possibility, the firm could adopt two classes of stock, permitting its partners more control than a single-class structure would. Again, there's a "but": That structure currently is under fire at the likes of New York Times (NYSE: NYT), and even successful cable operator Comcast (Nasdaq: CMCSA). Its days may be numbered.
Lastly, there's the notion that an IPO would only serve to make Blackstone and its brethren more indistinguishable from their large Wall Street competitors, including Goldman Sachs (NYSE: GS) and Lehman Brothers (NYSE: LEH), most of whom have invested progressively more of their own funds in corporations and other commercial entities. A spate of private equity IPOs, it seems to me, would remove some of the newly public firms' below-the-radar advantages over more traditional investment banks. To add to the intensifying confusion, Goldman could be Blackstone's lead underwriter if an IPO were to occur.
Fools, this is why finance and investments are so alluring: They're very much like the world of sports, with a new game beginning each day, and a surprise in almost every inning. After all, who among us would have thought when we awoke on Friday that public and private investments had the potential to be blurred so completely? At least in this game, nobody ever throws out an arm, and only rarely is a player hit by a pitch.
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Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your questions or comments.
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