Blackstone's IPO, thick with irony

(Fortune Magazine) -- Much has been made lately about the competing virtues of public versus private companies.

What's so amusing about Blackstone going public is that it pretty much makes a mockery of all the arguments about why it's better to be private.

Blackstone CEO Stephen Schwarzman

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It's almost too perfect.

The leading practitioner of the going-private transaction, the technique that removes public companies from the supposedly destructive glare of nitpicking shareholders and obstructionist regulators, is subjecting itself to this most heinous scrutiny.

Reading through Blackstone's impressive S-1 filing with the SEC on Thursday - fund-management fees jumped from $174 million in 2002 to $852 million in 2006 - one small section on this subject jumped out at me.

Under the heading "We Intend to be a Different Kind of Public Company," Blackstone writes: "We have built a leading global alternative asset management and financial advisory firm that has achieved success and substantial growth. While we believe that becoming a publicly traded company will provide us with many benefits, it is our intention to preserve the elements of our culture that have contributed to our success as a privately-owned firm."

Blackstone says this means it will ignore short-term results and instead focus on long-term investments.

The investors in its funds are what really matters, it suggests, and investors in the management company - which is what is going public - will have to live with that reality.

There's both a commendable logic and laughable self-righteousness to the statement.

Investors in Blackstone's funds are required to invest for the long term. And indeed, buyout firms tell the management teams they acquire that their long-term focus will be a plus. Then, when public markets are advantageous - like, um, now - buyout artists like Blackstone will return their companies to the market lickety-split.

This is all totally appropriate. The goal from management's perspective is get the best of being public (access to cheap capital, liquidity for employees) and the best of being private (the aforementioned ability to not worry about quarterly results).

It's all reminiscent, in fact, of Google's (Charts) approach to being a public company. Notice the similarities between Blackstone's S-1 today and the famous founders letter Larry Page and Sergey Brin included in their company's S-1 in 2004.

It read: "Google is not a conventional company. We do not intend to become one. Throughout Google's evolution as a privately held company, we have managed Google differently. ....Now the time has come for the company to move to public ownership. ... [T]he standard structure of public ownership may jeopardize the independence and focused objectivity that have been most important in Google's past success and that we consider most fundamental for its future. Therefore, we have designed a corporate structure that will protect Google's ability to innovate and retain its most distinctive characteristics."

In Google's case, the different structure is two-tier ownership, which gives Page and Brin voting control out of proportion to their equity. (It's the same kind of structure, by the way, that has a Morgan Stanley (Charts) fund manager in fits over the New York Times Co. (Charts) The fund manager knew, of course, what NYT Co.'s structure was when he bought the shares. Dual-class stock is benign in good times and suddenly becomes highly objectionable in bad times - which is precisely when the structure matters.)

In Blackstone's case, the twist is that owners of the management company won't necessarily share in the same rewards as the investors in Blackstone's funds.

Blackstone's filing should end the fulminations about how difficult it is to be publicly held in the United States. (Blackstone isn't filing to go public, it's worth noting, on the London Stock Exchange; it plans to list on the Big Board in New York.)

The really clever companies try to have it all. As long as they're good enough, investors will be willing to let them have it.

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