Yesterday was a tough day in the markets, with the Dow falling 199 points. But if you follow some of the legends of finance – such as Carl Icahn, T. Boone Pickens and The Blackstone Group's (NYSE: BX) Steven Schwarzman – you will notice that they are getting aggressive.
Keep in mind that these guys have been through multiple market cycles. And if history is any worthy benchmark, it's during times of instability where the big money is made.
Pickens is focusing on the energy industry. He sees major demand/supply imbalances and is buying various stocks. He is also interested in natural gas and alternative fuels.
As for Icahn, he's doing what he does best – shareholder activism. He senses when companies are vulnerable and seems to relish an attack on corporate managements and boards. Of course, he's gearing up for a fight with Yahoo! (NASDAQ: YHOO). Interestingly enough, he persuaded Pickens to buy 10 million shares.
And with Schwarzman, he's buying up the bank debt of companies that went private. Because Blackstone sees many deals, it has an extensive database of opportunities.
In other words, the legends of finance are confident in the long-term. They are making some big bets -- based on lots of experience and due diligence -- and not listening to the short-term noise. All in all, these are some valuable lessons for investors.
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As the private equity group looks at distressed assets, you have to wonder if this "passive stake" will become an "activist" filing down the road. There are rules on this that prevent major changes rapidly, but time has a way of working through this issue. It's just too hard to think of any money from these guys being anything at all similar to passive.
The chart to the right shows the performance of Stephen Schwarzman's Blackstone Group (NYSE: BX) since its IPO earlier this year. Just by looking at the stock price, you can tell that Mr. Schwarzman has some explaining to do.
At the time of the much-anticipated IPO, a lot of people, myself included, were warning investors to stay far, far away. It didn't appear that there was any reason for Blackstone to go public other than to allow insiders to cash in some of their chips at the absolute top of the private equity boom.
Of course, that's exactly what happened, and the IPO's poor performance has only added to Schwarzman's less than stellar reputation. In a recent speech covered by The New York Times, Schwarzman ran through all the traditional arguments about why private equity is good for the economy. He also added a somewhat bizarre twist, saying that the industry will help to mitigate the negative consequences of globalization.
Schwarzman can, and should, defend his industry all he wants. But the fact that he took the company public in what looked like a pretty self-serving money grab -- the IPO valued Schwarzman's stake at more than $7 billion -- will probably sully his reputation forever.
Okay. Everyone likes to get rich. And no one likes to get richer faster than Wall Street guys who are already loaded. But once we get past THAT most obvious explanation for The Blackstone Group's filing to raise $4 billion in an initial public offering, how do they REALLY justify it?
After all, the current environment in the private equity markets is probably the easiest in history for raising funds from investors. It's so darn easy that many observers think we're in the midst of a private equity bubble. Private equity firms collect billions in assets and launch new funds with boasts that they are oversubscribed on a weekly basis. Blackstone now has $79 billion under management, up from $14 billion at the end of 2001. That's 40% growth.
So why go through all the trouble and expense of an IPO to raise a paltry $4 billion more? Blackstone execs could probably raise that in five minutes with three phone calls. CEO Stephen Schwarzman himself called the public markets overrated at a European conference less than a month ago.
Well, a look at the S-1 shows that Blackstone's founders are simply planning for the future -- a time when institutional investors might not be so eager to throw money at them. "Our corporate private equity and real estate businesses have benefited from high levels of activity in the last few years," reads one of the first lines in the 220-page document. "These activity levels may continue, but could decline at any time because of factors we cannot control."
Stephen Schwarzman may be Blackstone Group LP's founder and CEO, and (let's face it) the sexiest of all private equity players this week. But "sexiest" and he-of-the-longest-tenure doesn't necessarily mean the most important. At Blackstone, the title of "most important" may very well be held by Hamilton E. "Tony" James.
In private equity firms as in investment banks and, to a lesser extent, venture capital firms, the "rainmaker" is the guy who makes or breaks the company's fortunes. While Schwarzman may be the schmoozer, the guy whose birthday parties are the most fabulous and whose paychecks and public statements are the most scrutized, it's Tony James who (if the Wall Street Journal's take is any indication) brings home the bacon.
Indeed, his tenure at the first isn't long. But with rainmakers as a class of people, "patience" and "longevity" are not known as generally-held values. James, like so many of the quietest and most influential at the top of private equity firms, has a thoroughly Harvard pedigree, having graduated magna cum laude and John Harvard Scholar as an undergrad, then going on to earn an MBA and the "Baker Scholar" designation from HBS. In other words, an unqualified smarty pants of the highest order.
When he was still young enough to be called a "whiz kid," he was a banker at Donaldson Lufkin Jenrette.
The rumors were true! Today at the market's close, Blackstone Group LP filed with the SEC to raise up to $4 billion in an IPO. The S-1 is huge and full of all kinds of little juicy details that I'm sure we'll be analyzing in depth over the coming weeks. I can't wait to read the clause entitled "Firm Use of Our Founders' Private Aircraft."
However, until further examination, we can't answer the most important question asked earlier today: how much does founder, chairman and CEO Stephen Schwarzman make? He and other important officers actually don't draw salaries or bonuses and are instead paid out cash distributions of the firm's investment gains each year. How much were they paid for 2006? That part is blank, in all likelihood because it hasn't yet been paid out for the year (although I'd be willing to lay odds the management team knows how much they made in 2006). Crafty! [Update: Deal Journal's Dana Cimilucca was sharper-eyed than I and found one nugget: following the offering, Schwarzman will draw a modest, Warren-Buffett-sized salary of $350,000. Our original question -- what does Schwarzman make today? -- is still unanswered.]
The huge potential amount of the IPO will certainly make for interesting philosophical discussions over the next few months. Oh, and we have one more question to answer: which banks lead the deal? Morgan Stanley and Citigroup are the guys with top billing; Merrill Lynch & Co, Credit Suisse, Lehman Brothers and Deustche Bank Securities round out the group making millions in fees on Blackstone's coming march to the public markets.
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Yesterday was a tough day in the markets, with the Dow falling 199 points. But if you follow some of the legends of finance – such as Carl Icahn, T. Boone Pickens and The Blackstone Group's (NYSE: BX) Steven Schwarzman – you will notice that they are getting aggressive. 
The chart to the right shows the performance of Stephen Schwarzman's 
